KPMG Fined £1.46 Million by UK Watchdog Over Audit Failings

Britain’s accounting watchdog, the Financial Reporting Council (FRC), has imposed a fine of £1.46 million on KPMG for deficiencies in its audit of advertising company M&C Saatchi plc in 2018. 

The investigation was initiated following accounting errors discovered by M&C Saatchi, leading to the restatement of its 2018 accounts.

Breach Details:

KPMG and Adrian Wilcox, the audit engagement partner, admitted to breaches related to failures in auditing with sufficient professional skepticism regarding certain payments that inflated revenue by £1.2 million. 

Additionally, there were lapses in auditing journal entries across subsidiary companies and in documenting reasoning concerning the retention of rebates under a contract.

Sanctions and Fines:

If not for admitting to the breaches, KPMG would have faced a £2.25 million fine. Instead, it was fined £1.46 million, and Wilcox was fined £48,750 with a severe reprimand. KPMG also covered the investigation costs.

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Cath Burnet, head of audit at KPMG UK, expressed regret over the deficiencies in the 2018 audit of M&C Saatchi. She emphasized the firm’s commitment to learning from past cases and investing in audit quality, training, controls, and technology to enhance their audit practice.

Mitigating Factors:

The FRC cited KPMG’s cooperation and ongoing “audit improvement programs” as mitigating factors. These efforts reduce the likelihood of recurring failings identified in the M&C Saatchi audit.

Previous Enforcement Action:

KPMG faced a £21 million FRC fine in October for audit failures in the case of builder Carillion, indicating a pattern of deficiencies in its auditing practices.