KPMG was fined $1.15 million for failing to audit Revolution Bars Group.

The Financial Reporting Council (FRC) of the United Kingdom (UK) announced on Tuesday that KPMG will pay a reduced fine of 875,000 pounds (US $1.15 million) for auditing failures at bar chain Revolution Bars Group in the fiscal years 2015 and 2016.

The initial fine of £1.25 million (US $1.64 million) imposed by the FRC was reduced due to mitigating factors and admissions. Michael Neil Frankish, a former KPMG director, received a reduced fine of £35,000 (US $46,000).

KPMG was also reprimanded and ordered to declare that its Revolution audit reports did not meet relevant standards, as well as to report to the FRC on its analysis of the breaches and how it plans to prevent them from happening again. The firm will also cover the investigation's costs.

The financial penalty imposed on KPMG is the third in the last seven months by the FRC. The Big Four audit firm was fined £3 million (then-U.S. $4.1 million) in January for audit failings at now-defunct alcohol retailer Conviviality and ordered to pay £13 million (then-U.S. $18 million) in August for "breaches of the principles of integrity and objectivity" in its advisory role regarding the 2011 sale of mattress company Silentnight to U.S. private equity firm HIG Capital.

The specifics: According to the FRC, KPMG's admitted failures at Revolution related to three areas of its audits: supplier rebates and listing fees, share-based payments, and deferred taxation. The failures in deferred taxation were only for FY2016.

"The company’s financial statements for FY2015 and FY2016 contained various misstatements which had to be corrected, some of which arose from the three areas mentioned and some of which were material to the financial statements as a whole", the FRC said in a press release.

The FRC stated in its final decision notice that Revolution's financial statements for FY2017 and FY2018 revealed restatements related to supplier rebates, share-based payments, and deferred taxation, the three areas flagged by KPMG during the relevant audits.

The audits of Revolution's financial statements were performed by Frankish from 2014 until his departure from KPMG in 2016, despite the fact that he was not an audit engagement partner at the firm, according to the FRC. On behalf of KPMG, he signed the audit reports for FY2015 and FY2016 in his own name.

The FRC concluded that the breaches were "not intentional, dishonest, deliberate or reckless, and that the respondents provided a good level of cooperation during the investigation."

"We regret that aspects of our 2015 and 2016 audits of Revolution Bars Group fell short of required standards," a company spokesperson said. "Our firm is committed to dealing with, and learning from, our historic cases. We have fully cooperated with the FRC throughout their investigation."

"We continue to invest significantly in our business, taking action to address the FRC’s findings, and have made significant improvements to our audit procedures through our audit quality transformation program, including in respect of supplier rebates, share-based payments, and deferred tax."

By fLEXI tEAM