06 March 2024 , 15:21
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KPMG, one of the big-four financial firms, has been hit with a nearly £1.5 million fine by the UK's accounting watchdog over its audit of advertising company M&C Saatchi.
The Financial Reporting Council (FRC) announced the penalty this week almost three years after it first started looking into KPMG. This all started when M&C Saatchi discovered mistakes in its accounts for 2018. The FRC found that KPMG didn't do its job properly, saying it failed to "audit with professional scepticism".
It also said that because of these failures, revenues were overstated by about £1.2 million. These errors were eventually corrected in M&C Saatchi's annual accounts for 2019.
The investigation also found that KPMG didn't properly check journal entries across several subsidiary companies and didn't document their reasoning or complete their inquiries with management about rebates related to one contract. The FRC said these mistakes "undermine confidence in statutory audit and the truth and fairness of financial statements".
KPMG was originally going to be fined £2.25 million, but this was reduced to £1.46 million after it worked to improve its audit processes. KPMG also had to pay for the costs of the investigation.
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Mr Wilcox, who was in charge of the audit at the firm, was initially going to be fined £75,000 but this was lowered to £48,750.
Claudia Mortimore, who is the deputy executive counsel at the FRC, said: "KPMG's audit did not meet the required quality standards in a number of respects, amounting to serious audit failings and breaches of audit standards. This included a lack of professional scepticism in certain high-risk areas of the audit and basic failings in journal testing."
Cath Burnet, who is the head of audit at KPMG UK, said: "We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi plc fell short of required standards. We continue to invest significantly in audit quality, in our training, controls and technology, to drive further improvements and resilience in our audit practice."
This comes five months after KPMG was given a record £21 million fine by the FRC for its poor work for the collapsed outsourcing company Carillion.