KPMG UK and partner fined over £1m after probe into Carr’s audit
Big Four firm KPMG UK and an audit partner have been hit with sanctions over their audits of a London-listed farm supplies company following the regulator’s finding of “serious” breaches.
Following an investigation into the audit of Carr’s for the financial year ended August 28, 2021, the Financial Reporting Council (FRC) found breaches of its independence requirements.
The independence issue arose after the audit of Carr’s relied on the work of an unnamed firm that undertook the audit of an associate of Carr’s. The circumstances was an audit engagement partner at the unnamed firm had held the role for longer than five years, and the unnamed firm had provided certain non-audit services to the associate entity.
The FRC said KPMG and audit engagement partner Nick Plumb should not have signed Carr’s audit report, as they were placing reliance on the work of the other firm.
The Big Four firm and the partner were found to have breached the FRC’s 2019 Ethical Standard and the International Standards on Auditing.
However, the regulator made it clear that it did not call into question the quality of the substantive audit work conducted by either KPMG or the unnamed firm. It also stated that the breaches were not dishonest, intentional, or reckless.
KPMG UK top for financial sanctions
The FRC said KPMG and Plumb provided an exceptional level of cooperation during the investigation, including by self-reporting the breaches and volunteering “relevant additional information”.
This conduct resulted in a 15 per cent discount in addition to the discount for admissions and early disposal for both the firm and partner.
KPMG was issued with a financial Sanction of £1.25m, discounted to £690,625 while Plumb received £70,000, reduced to £38,675.
Jamie Symington, FRC deputy executive counsel, said: “In this case, whilst the quality of the audit work performed by the two firms is not brought into question, the breaches were serious. KPMG and Plumb missed a number of opportunities in FY21 to establish the facts underpinning the breaches.”
“The respondents’ failings in this regard were of a basic and fundamental nature,” Symington added.
Commenting on the sanction, Cath Burnet, head of audit at KPMG UK, said: “We accept that we did not meet the required standards in this instance. We cooperated fully with the FRC’s investigation, undertook remedial measures to address the findings, and are committed to driving continuous improvements in our audit practice.”
As of April, Morning Wire reported that KPMG UK was leading the other Big Four firms in total financial sanctions over the last five years, with now 12 fines.