FRC fines KPMG £14.4m over Carillion audit
The FRC said the fine has been reduced from £20m to reflect KPMG’s self-reporting, co-operation, and admissions
The Financial Reporting Council (FRC) has revealed it has fined KPMG £14.4m after it provided “false and misleading” information and documents to the regulator in connection with its Audit Quality Reviews of two Carillion audits carried out by KPMG.
An independent Disciplinary Tribunal made the findings of Misconduct following a five-week hearing during January and February 2022 and sanctions were determined following a hearing in May 2022.
KPMG admitted its liability for the acts of all the individuals and that those acts amounted to Misconduct.
The FRC said the fine has been reduced from £20m to reflect KPMG’s self-reporting, co-operation, and admissions. The FRC said KPMG has also been “severely reprimanded” and ordered to appoint an independent reviewer to conduct a review to consider the effectiveness of KPMG’s current AQR policies and procedures in supporting high quality engagement with the AQR inspectors.
In addition, former KPMG partner Peter Meehan was fined £250,000 and excluded from membership of the ICAEW for 10 years.
Audit senior managers Alistair Wright and Adam Bennett have also been fined £45,000 and £40,000 respectively and were each handed eight-year bans.
Richard Kitchen was also fined £30,000 and banned for seven years. Another auditor, Stuart Smith, was fined £150,000 and banned for three years under a settlement with the FRC before the tribunal started.
KPMG has also agreed to pay £3.95m towards Executive Counsel’s costs of the investigation together with the costs of the Tribunal.
In commenting on the importance of the AQR process and the seriousness of the Misconduct in its report the Tribunal stated:
“The seriousness of the Misconduct that we have found proved scarcely needs explanation. Effective audits are essential to the financial system. Management and investors should be able to rely on the audited financial reports of the company in question. The purpose of AQRs is to assess, and where appropriate suggest improvements to, the effectiveness of audits.
“The effectiveness of the regulation of auditors and audits depends on the accurate disclosure to the AQR Team of the audit work carried out by the auditor. Misleading the AQR undermines the effectiveness of its work; indeed, it may deprive the AQR of any useful result.”
Elizabeth Barrett, executive counsel, added: “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.”
Jon Holt, UK chief executive of KPMG, told Accountancy Today: “I accept the findings and sanctions of the tribunal in full. The behaviour underlying this case was wrong and should never have happened.
“We reported it to our regulator as soon as we uncovered it and we have cooperated fully with their investigation. Since then, we have worked hard and with complete transparency to our regulator, to assure ourselves that the behaviour of the individuals concerned does not reflect the wider culture of the firm.”