Shaming of KPMG
Big Four accountant faces SEVENTH probe following collapse of Bargain Booze owner
sCandal-hit KPMg is being investigated for its audit of bust drinks firm Conviviality – meaning it is being probed over its involvement in seven big business disasters.
The Financial Reporting Council is looking at the accountancy firm’s audits of the Bargain Booze and Wine Rack owner for the year ending april 30, 2017, one year before it collapsed due to a £30m tax bill and falling wholesale margins.
The investigation is a further major embarrassment for KPMg just weeks after it was singled out by the FRC for an unacceptable decline in the quality of its work, and put on special watch.
It is also under investigation by the FRC for work with Carillion, RollsRoyce, Ted Baker, BnY Mellon, Co-op Bank, and Equity Red star.
last month it was fined £4.5m over its audit of insurance technology company Quindell. Partner William smith was fined £84,000. KPMg also had to overhaul its team in south africa last year after a probe into its work for the controversial gupta family.
There are growing calls for the audit industry to be broken up amid concerns there is too little competition between the biggest four firms KPMg, PwC, deloitte and EY.
deloitte is under three live FRC investigations, while PwC faces two, having just been fined a record £10m over its audits of bust retailer BHs.
The FRC has also been under pressure to get tougher on audit firms following criticism that it is too soft.
Conviviality, led by chief executive diane Hunter until January, collapsed after profit warnings in March when it said it had overestimated forecast earnings by 20pc, or £5.2m.
That month it also had to suspend trading in shares and cancel its dividend after the discovery it owed more than £30m in taxes.
The company’s retail arm, which includes Bargain Booze and Wine Rack, was sold to food business Bestway for £7m, saving 2,000 jobs. Its wholesale arm was sold via pre-pack administration to C&C, the Irish cider giant that makes Magners and Bulmers. KPMg said it believed it had conducted its audit appropriately and would co- operate with the investigation.
a spokesman added: ‘as reported by the company, it experienced margin weakness at the start of 2018 and also a significant payment to HMRC which had not been included within its short term cash flow projections, creating a short term funding requirement.
‘Our audit of the company’s financial statements for the year ended april 30, 2018 had not yet commenced at the point which administrators were appointed.’
In an annual review of audit firms last month, the FRC said accountants were not sceptical enough and did not challenge management enough. From a sample of 24, it found that half of KPMg’s audits of FTsE 350 companies needed improvements, compared to 35pc the year before. across all eight firms included in the review, around 27pc of FTsE 350 audits needed improvements.