The FRC imposed sanctions against KPMG and its audit partner Andrew Walker, who has been fined £125,000, following their “admission of misconduct” in relation to the audit of financial statements.
The misconduct occurred shortly after merger between the Co-operative Bank and building society Britannia, and KPMG and Walker both admitted that their conduct fell “significantly short” of the standards reasonably to be expected of an audit firm and an audit partner in two areas:
- The audit of Fair Value Adjustments (FVAs) in relation to loans within the commercial loan book acquired from Britannia
- The audit of FVAs and liabilities under a series of loan notes, (Leek Notes), which were also acquired from Britannia
A statement by the firm read: “The misconduct in respect of these two areas included: failures to obtain sufficient appropriate audit evidence; failures to exercise sufficient professional scepticism and a failure to inform Co-op Bank that the disclosure of the expected lives of the Leek Notes in the financial statements was not adequate.”
All of KPMG’s audit engagements with credit institutions for audits with 2019, 2020 and 2021 year ends will now be subjected to an additional review by a separate KPMG Audit Quality team, who will provide reports to the FRC.