FRC reprimands KPMG for Conviviality and Regenersis failings
A member of the Big Four has once again been stung with a fine for audit failings in the UK. KPMG has been fined for £3 million for its role in drinks company Conviviality, while it also reached a settlement for its work relating to software company Regenersis.
Conviviality, which included the budget off-license chain among its portfolio, entered administration at the beginning of April 2018. Prior to its collapse, Conviviality ran more than 700 retail stores, alongside 352 franchises, employing thousands of people across Britain. However, it entered a rapid decline when profits that year were found to be 20% less than previously reported.
It was soon announced KPMG was being examined on the matter by the Financial Reporting Council (FRC). KPMG had acted as the alcohol retailer’s auditor since 2015, and according to an FRC spokesperson, "If the relevant threshold tests are met in relation to accountants at the company and/or its auditors a formal investigation may be opened.”
A case was indeed opened, and KPMG has now received a “severe” reprimand and reduced penalty of £3 million (reduced from £4.3 million) for breaches that arose in its audits of Conviviality’s financial statements. In addition to the fine, KPMG must report to the FRC “identifying the causes of the deficiencies in the 2017 audit and the steps and remedial action which the firm has taken to prevent to reoccurrence of those deficiencies.” Meanwhile, Nicola Quayle, the firm’s audit engagement partner, also received a severe reprimand and was fined a reduced £80,850.
The FRC said the breaches “were not intentional, dishonest, deliberate, or reckless.” The regulator further acknowledged KPMG and Quayle “provided a good level of cooperation during the investigation.” However, the charges come as the FRC has also reached a reported settlement with KPMG for another case of audit failures.
Britain's accounting watchdog said on Tuesday that KPMG and one of its former employees have admitted misconduct, during the regulator's spot checks on an audit of software company Regenersis in 2015. The FRC said Stuart Smith has admitted that he misled inspectors from the watchdog, and that his conduct was contrary to his ICAEW professional accounting body's code of ethics.
The watchdog fined Smith £150,000 and banned him from practising as an accountant for three years. Meanwhile, the FRC said sanctions on KPMG will be determined at the conclusion of an on-going tribunal hearing on checks on audits of Regenersis and builder Carillion.
The FRC stated, “Smith has admitted that he made, or was responsible for, representations to the FRC’s AQR inspectors which were misleading and that he was reckless as to whether those representations were misleading and whether the inspectors would be misled by them.”
The news comes as the FRC continues to moot new regulations to improve the quality of audits performed by the industry’s biggest players. While the Big Four has criticised these plans, incoming FRC Chair Jan du Plessis recently told the UK’s business select committee that "the outcome could be much worse for them" if they are not forthcoming in improving the audit industry.