Out-Law News | 20 Aug 2018 | 2:37 pm | 1 min. read
KPMG and one of its auditors were each issued with a fine and a severe reprimand after admitting to the misconduct. KPMG’s fine was discounted from £3m as it settled the case with the FRC, while the auditor, Michael Barradell, received a fine of £46,800 discounted from £80,000.
In an investigation into KPMG’s conduct, the FRC found that the firm had agreed to take on an expert witness role for Ted Baker in relation to the sums involved in a commercial court claim while continuing to offer audit services. The FRC said this posed a “self-review threat” which eventually transpired.
This was because KPMG was at risk of reviewing, and relying on for the purposes of its audit of Ted Baker’s accounts, the conclusions reached by its forensic department when deciding whether to disclose a contingent asset in respect of the claim. The audit department failed to conclude that KPMG had lost its independence as a result.
The FRC also found that the expert witness fees far exceeded audit fees received from Ted Baker in the financial years 2012/13 and 2013/14, giving rise to a "self-interest threat".
Both KPMG and Barradell admitted that their conduct fell short of the standards to be expected of members of the Institute of Chartered Accountants in England and Wales, and that they did not act in accordance with the institute’s principles of professional competence and due care.
The FRC’s interim executive counsel Claudia Mortimore said: “Ethical standards are critical in supporting the confidence that third party users can reasonably have in financial statements in circumstances where, of necessity, they only have incomplete information to judge whether the auditor is in fact objective. Where those standards are breached such that the auditor’s independence is lost, user confidence is likely to be undermined; the FRC makes clear by these sanctions the seriousness with which such breaches and their consequences are viewed.”