KPMG UK and partner fined over Carr's Group audit

As regulators continue to pile pressure on the Big Four auditing and advisory firms in the UK, KPMG has been stung with a million-pound sanction. The Financial Reporting Council said the fine in connection to the firm’s work for Carr’s was due to “serious” breaches in ethical standards.

Carr’s Group is an international manufacturer for farming machinery. The firm supplies agricultural customers around the world. Following an investigation into the audit of the firm’s financial year ended August 28, 2021, the Financial Reporting Council (FRC) found breaches of its independence requirements.

The issue arose after it emerged that the audit of Carr’s relied on the work of an unnamed firm that undertook the audit of an associate of Carr’s. An audit engagement partner at the unnamed firm had held the role for longer than five years, and the unnamed firm had also provided some non-audit services to the associate entity. The FRC said KPMG and audit engagement partner Nick Plumb should not have signed Carr’s audit report, as they were placing reliance on the work of the other firm.

Jamie Symington, FRC deputy executive counsel, commented, “In this case, while the quality of the audit work performed by the two firms is not brought into question, the breaches were serious. KPMG and Plumb missed a number of opportunities in FY21 to establish the facts underpinning the breaches… The respondents’ failings in this regard were of a basic and fundamental nature.”

Cath Burnet, head of audit at KPMG UK, meanwhile added, “We accept that we did not meet the required standards in this instance. We cooperated fully with the FRC’s investigation, undertook remedial measures to address the findings, and are committed to driving continuous improvements in our audit practice.”

While the FRC was clear that it was not calling into question the quality of the substantive audit work conducted by either KPMG or the unnamed firm on this occasion. The FRC added that the breaches were not dishonest, intentional, or reckless – however, KPMG and the partner were still found to have breached the FRC’s 2019 Ethical Standard and the International Standards on Auditing.

As a result, KPMG was issued with a financial sanction of £1.25 million, while Plumb received £70,000. While both rates were discounted by 15% due to high levels of cooperation during the investigation – volunteering “relevant additional information” – the respective £690,625 and £38,675 bills will still be an unwelcome expense for KPMG, as the Big Four firms look to secure their profit margins amid lean times.

The news comes shortly after Big Four rival EY also racked up fines in excess of £5 million. Within the space of a week, the Financial Reporting Council sanctioned the Big Four firm for its auditing role at collapsed airline Thomas Cooke, and for breeching term limits in its work with Stirling Water Seafield Finance.