KPMG fined £3.2m in Britain
• Fine comes amid wider scrutiny of ‘big 4’ auditing firm in UK and SA
Britain’s accounting watchdog fined KPMG £3.2m on Monday for failings in its audit of Quindell, after the legal services firm twice restated its accounts leading to heavy losses.
KPMG and its employee William Smith, who was fined £84,000, both failed to ensure that Quindell’s financial statements for 2013 and 2014 were free from material mis-statement, the Financial Reporting Council (FRC) said.
KPMG apologised on Monday for failing to press Quindell’s management harder over the company’s accounts.
“We accept the FRC’s findings that in two specific areas of the audit, our challenge for the year ended December 31 2013 should have gone further,” a spokesman for KPMG said.
The fine in Britain comes as the global network of accounting firms that make up KPMG is under pressure.
It is facing an inquiry in Britain over its audit of failed outsourcer Carillion as well as scrutiny of its South African arms work for a company owned by the Gupta family.
Its reputation took a knock when it emerged that the firm’s former CEO, Moses Kgosana, attended a Gupta family wedding at Sun City in 2013.
The wedding was allegedly paid for with public money that was diverted from an agricultural project paid for by the Free State government.
The firm has since appointed Nhlamu Dlomu as his replacement as CEO.
Last week KPMG SA announced it was “reshaping” its business — including a number of retrenchments, along with further support from KPMG International to strengthen leadership capacity.
“We anticipate up to 400 people leaving the firm as a result of our plan to close certain regional offices, operate a refocused advisory business and scale back our internal business support to reflect our reduced footprint. We plan for the business to operate in future out of four hubs in Joburg, Cape Town, Durban and Port Elizabeth.
“KPMG in SA will remain a business of significant scale with more than 130 partners and 2,200 employees, supported by the breadth and depth of skills and experience of the international network of KPMG of 200,000 people,” the auditing firm continued.
KPMG is under investigation by the Independent Regulatory Board for Auditors in relation to its audits of several Gupta companies and has been dropped by several firms in recent months, including Finbond and the South African Institute of Chartered Accountants last week, and Absa and Redefine Properties last month. As a result it has been bleeding clients both in the public and private sectors in SA.
The big four accounting firms, including KPMG, are facing calls to break up into smaller parts. MPs in Britain allege their dominance of the market means they do not sufficiently challenge clients’ claims about their accounts.
The FRC is also investigating KPMG’s auditing of the collapsed construction and outsourcing firm Carillion.
Once close to being one of Britain’s blue chip financial firms, the AIM-listed Quindell saw its market value collapse in 2015 after regulators launched probes into its financial accounts. Quindell, which has since been rebranded as Watchstone, is still being probed by Britain’s Serious Fraud Office and the FRC over its business and accounting practices.
KPMG’s fine was discounted from an original £4.5m and Smith’s from £120,000 because they chose to settle the case, the FRC said.