KPMG, one of the "big four" accountancy firms, has been handed a record-breaking £21 million ($25.7 million) fine by the UK accountancy regulator, the Financial Reporting Council (FRC).
This penalty comes as a result of serious auditing errors related to the collapse of construction company Carillion. The FRC's executive counsel, Elizabeth Barrett, criticized KPMG for the "number, range, and seriousness of the deficiencies" in their audits, which occurred between 2013 and 2017. These failures were described as "exceptional."
Barrett also highlighted that many of the breaches involved KPMG's failure to adhere to fundamental auditing concepts, such as professional skepticism and obtaining sufficient appropriate audit evidence.
Originally, the FRC fined KPMG and its auditing arm £26.5 million and £3.5 million, respectively. However, these fines were later reduced by 30% to £18.55 million and £2.45 million to reflect the firm's cooperation.
Individual penalties were imposed on KPMG's two lead engagement partners involved in the Carillion matter, Peter Meehan and Darren Turner. Meehan received a £350,000 fine, while Turner was fined £70,000.
Meehan, in particular, faced strong criticism in the findings. In KPMG's 2016 audit of Carillion, he instructed the audit team to record his review of working papers without actually performing such a review. Moreover, the audit work continued for over six weeks after Meehan signed off on the final audit file.
Jon Holt, the chief executive and senior partner of KPMG in the UK, acknowledged the severity of the findings and apologized for the firm's failings. He stated, "It is clear to me that our audit work on Carillion was very bad, over an extended period. In many areas, some of our former partners and employees simply didn't do their job properly. Junior colleagues were badly let down by those who should have set them a clear example, and I am upset and angry that this happened at our firm."
The revelations surrounding KPMG's actions will further intensify scrutiny of the accountancy profession and the audit process, particularly following the FRC's earlier announcement that another "big four" firm, PwC, was being investigated for its audits of the collapsed UK shopping center owner, Intu Properties.
By fLEXI tEAM