Over its botched audits at collapsed construction company Carillion and software firm Regenersis, Big Four firm KPMG is set to pay a reduced fine of 14.4 million pounds (US $17.6 million).
The Financial Reporting Council (FRC) of the United Kingdom said Thursday that KPMG would face a "severe reprimand" for "extremely serious" misconduct committed by employees during the first day of a two-day tribunal hearing.
During previous hearings that began in January, the accounting firm admitted to misconduct, misleading the regulator, and fabricating documents, including creating false minutes and retroactively editing spreadsheets to fool regulators.
These admissions aided in the reduction of a proposed fine of £20 million (US $24.5 million), which would have been the highest FRC fine ever. In September 2020, Deloitte was fined £15 million (then $19.4 million) for auditing failures at former FTSE 100 software company Autonomy.
KPMG has also agreed to pay costs of £4.3 million ($5.3 million).
The impending sanctions follow fines of £875,000 (then-U.S. $1.15 million) in March for audit failings in its work at bar chain Revolution Bars Group, £3 million (then-U.S. $4.1 million) in January for failings at alcohol retailer Conviviality, and £13 million (then-U.S. $18 million) in August for integrity and objectivity breaches at mattress company Silentnight.
The tribunal will also consider penalties for five KPMG employees who were all found guilty of misconduct in the coming weeks.
The FRC recommended that Peter Meehan, the former KPMG partner in charge of the Carillion audit, be fined at least £400,000 and barred from the accounting and auditing profession for 15 years. Meehan has claimed that he was the "patsy" for his juniors' questionable work.
The FRC is seeking fines of £100,000 (US $122,000) and a 12-year ban from the sector for Alistair Wright, Richard Kitchen, and Adam Bennett. Pratik Paw, a team member who was not even qualified at the time of the misconduct, has been recommended for a four-year ban and a £50,000 (US $61,000) fine.
Stuart Smith, the Regenersis audit is lead partner, reached a confidential settlement with the FRC in January (reportedly a £150,000 fine and a three-year suspension).
"We are deeply sorry that such serious misconduct occurred in our firm," Jon Holt, chief executive of KPMG UK, said in an emailed statement. "It was unjustifiable and wrong. It was a violation of our processes and a betrayal of our values."
"I am saddened that a small number of former employees acted in such an inappropriate way, and it is right that they—and KPMG—now face serious regulatory sanctions as a result."
"This matter does not represent the wider culture or practice of our firm," he added.
Neither KPMG's admissions nor the tribunal's decisions are likely to put an end to the scandal or stop future debates about audit quality—and accountability.
Over the audit and preparation of Carillion's 2016 accounts, the FRC is already investigating KPMG and former Carillion directors. Creditors have sued KPMG for missing "red flags" that should have warned it that Carillion was insolvent more than two years before it collapsed.
The United Kingdom government pledged to publish legislation on audit market reform in this week's Queen's Speech.
By fLEXI tEAM