KPMG fined £3.7m for ‘serious failures’ over Rolls-royce audit
KPMG has been fined £3.37m over a botched audit of Rolls-royce in the wake of the bribery scandal at the engine maker.
The big four auditor had been aware of allegations of bribery in the industry and yet demonstrated “serious failures to exercise professional scepticism”, the Financial Reporting Council audit watchdog found.
The fine relates to the audit of Rollsroyce’s 2010 accounts. While the regulator did not find that the accounts were wrong because of the failings, it said KPMG’S quality control was not up to scratch.
In 2017, Rolls-royce apologised and paid more than £670m in penalties to settle allegations that it handed millions of pounds in inducements to introducers in six countries, including Russia.
Jon Holt, chief executive of KPMG in the UK, apologised for the failures and said: “In addition to resolving legacy cases, we are also investing significantly in training, controls and technology to improve quality and resilience in our audit practice.”
KPMG also faces a £14.4m fine in the wake of its disastrous audit of construction company Carillion. In that case former staff forged documents and misled the FRC over its audits. Claudia Mortimore, deputy executive counsel to the FRC, said: “It is essential that auditors are alive to the risks of companies’ noncompliance with laws and regulations, and conduct work in this area with care and sufficient professional scepticism.
“This is particularly so when the audited entity is in a sector where such risks are known to be prevalent.
“The package of financial and nonfinancial sanctions imposed in this case should help to improve the quality of future audits.”
In exchange for limited liability, companies above a certain size submit to an external audit of their accounts each year.
Auditors are paid by the companies and can be fired by them. The practice has been criticised since the financial crisis as large companies were also paying accountants for advice, leading to accusations of conflicts of interest.
The regulator itself has also come in for criticism for being slow to act and was due to be replaced with a new, more powerful regulator, but the move was dropped from the Queen’s Speech earlier this month.
KPMG avoided a heftier £4.5m fine by cooperating with the regulator. The partner in charge of the audit, Anthony Sykes, was fined £112,500.