The Financial Reporting Council (FRC) has handed accountancy firm KPMG a £14.4m fine in relation to its audit of Carillion and another company, Regenersis. An independent disciplinary tribunal made findings of misconduct following a five-week hearing after it found that KPMG had provided false and misleading information to the FRC, writes David Little, a Partner in our Corporate and Commercial department.
KPMG has admitted its liability and the FRC fined it £20m, reduced to £14.4m to reflect KPMG’s self-reporting, cooperation, and admissions.
The company has also received a severe reprimand and the FRC has ordered it to appoint an independent reviewer to consider the effectiveness of KPMG’s current audit quality review (AQR) policies.
You may recall the FRC fined audit firm UHY Hacker Young £300,000 for failings relating to its audit of the retailer Laura Ashley for the financial years ending June 2018 and 2019.
Another famous auditor, Deloitte, was fined £2m after rule breaches of its audit of outsourcing group Mitie Group plc in April this year.
It’s not all been plain sailing either for PwC, the world’s largest auditor. They were fined twice in June alone by the FRC for rule breaches relating to Galliford Try and Keir audits (£5m) and Redcentric (£6.5m).
Those of a macabre disposition can read up on all the FRC’s enforcement judgements here.
So, has the world of UK audit suddenly disappeared down a sinkhole of doom? Absolutely not. Certainly, there is an ongoing debate about whether the audit and accountancy sides of the Big Four accountancy firms should be split. That’s a topic for another blog.
But what these large fines and pretty punitive personal sanctions against individuals amplify is that the rule of law is being upheld here in the UK. Of course, our regulatory system can always be improved. But just take the case of Carillion, a company that collapsed into administration five years’ ago. The FRC didn’t give up. It continued with its investigation and whilst it won’t recompense shareholders or the employees who were left high and dry by those deemed responsible for the deception and errors, those individuals have been brought to book.
Elizabeth Barrett, executive counsel at the FRC, said: “Misconduct that deliberately undermines the FRC’s ability to monitor and inspect the effectiveness of audits is extremely serious because it obstructs the FRC’s ability to protect the public interest. This case underlines the need for all professional accountants, regardless of seniority, to be aware of their individual responsibility to act honestly and with integrity in all areas of their work.”
I did wonder, where do FRC fines go? According to the FRC in February, “Money from FRC fines comes into our reserves where it is used to fund strategic projects that address public interest matters and support the development of the wider profession. In recent years this has included social mobility programmes and our international capacity building programme.”
Professional services in the UK are being closely policed. And I think that’s fine.
David Little is a Partner at Bishop & Sewell in our expert Corporate & Commercial team. If you would like to contact him please quote Ref CB333 on either 020 7631 4141 or email firstname.lastname@example.org.
The above is accurate as at 27 July 2022. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.