Register to get free articles
Want unlimited access? View Plans
Already have an account? Sign in
The FRC has fined KPMG £690,625 for breaching auditor independence rules in its 2021 audit of Carr’s Group by relying on work carried out by a non-network component auditor.
The UK accounting regulator also imposed a £38,675 fine on KPMG’s audit engagement partner Nick Plumb, who was the statutory auditor for the FY21 Audit and who signed off the audit report on behalf of KPMG on 7 December 2021.
The FRC’s executive counsel issued a Final Settlement Decision Notice (FSDN) following an investigation under the Audit Enforcement Procedure.
The probe found that KPMG and Plumb breached the FRC’s 2019 Ethical Standard and International Standards on Auditing by relying on work carried out by a non-network component auditor, Firm X, in the audit of an associate of Carr’s Group.
The breaches related to two key independence issues, including the audit engagement partner at Firm X had held the role for longer than five years, and the firm had provided tax and accountancy services to the associate entity.
These conditions should have precluded reliance on Firm X’s work under the FRC’s rules.
The FSDN did not question the quality of the audit work performed by either KPMG or Firm X, and the breaches were not deemed dishonest, intentional or reckless.
The fines which were initially set at £1.25m for KPMG and £70,000 for Plumb, were later reduced due to their cooperation and early resolution.
KPMG and Plumb self-reported the issues and provided further relevant information to the FRC.
The firm also received a severe reprimand, a declaration that its audit report did not meet relevant requirements, and an order to review a sample of audits involving non-network component auditors.
Meanwhile, Plumb received a severe reprimand alongside a declaration that his audit report failed to meet the required standards. KPMG has also paid the costs of the FRC’s investigation.
Carr’s Group, listed on the main market of the London Stock Exchange at the time, operates in the agriculture and engineering sectors. The 2021 group financial statements included results from subsidiaries, joint ventures and associates, including Carr’s Billington Agriculture (Operations) Limited, which was audited by Firm X.
FRC deputy executive counsel Jamie Symington said: “A fundamental objective of any audit engagement is that the intended users trust and have confidence that the audit opinion is professionally sound and objective.
“In this case, whilst the quality of the audit work performed by the two firms is not brought into question, the breaches were serious. KPMG and Mr Plumb missed a number of opportunities in FY21 to establish the facts underpinning the breaches.
Symington added: “The breaches in the current case involve the failure to identify bright-line prohibitions designed to secure the independence of the statutory auditor. The respondents’ failings in this regard were of a basic and fundamental nature.”
Cath Burnet, head of audit at KPMG UK, told Retail Sector: “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.”
