Britain’s Financial Reporting Council fines KPMG for Audit Failure

Britain’s accounting watchdog announced a fine of 1.46 million pounds ($1.90 million) imposed on KPMG for what it described as “basic failings” in its audit of advertising firm M&C Saatchi plc (SAA.L) in 2018. The Financial Reporting Council (FRC) initiated an inquiry following M&C Saatchi’s discovery of accounting discrepancies that necessitated the restatement of the company’s 2018 financial accounts.

Both KPMG and Adrian Wilcox, the audit engagement partner at KPMG overseeing M&C Saatchi, acknowledged violations related to insufficient professional scepticism in auditing a payment type that artificially increased revenue by 1.2 million pounds. The FRC also highlighted failures in auditing journal entries across several subsidiary companies and in documenting rationale concerning the retention of rebates under a contract.

The penalties applied consider the challenging nature of the audit, and the auditors showed resilience by delaying the signing date until they received additional evidence from management, stated the FRC.

According to the FRC, if KPMG had not admitted to the violations, it would have been fined 2.25 million pounds.

According to the FRC, Wilcox paid 48,750 pounds in fines and received a severe reprimand after admitting to the breaches, but avoided a 75,000-pound fine.

The costs of the investigation were also paid by KPMG.

The audit of M&C Saatchi in 2018 failed to meet KPMG’s standards, according to Cath Burnet, head of audit at KPMG UK.

Burnet stated that KPMG continues to invest heavily in improving audit quality through training, controls, and technology. The FRC didn’t impose further sanctions as KPMG was already in audit improvement programmes, reducing the risk of similar failings. KPMG faced a 21 million-pound FRC fine last October for “textbook failure” with Carillion.