KPMG's Annus Horribilis Continues With Fine for Ted Baker Audits
(Bloomberg) -- For KPMG, another week, another rebuke from U.K. accounting regulators.
KPMG was fined 2.1 million pounds ($2.7 million) by the Financial Reporting Council following its admission of misconduct on Ted Baker Plc’s financial statements in 2013 and 2014. In addition, a KPMG partner, Michael Francis Barradell, was reprimanded by the regulator and fined an additional 46,800 pounds.
The misconduct arose from KPMG providing expert witness services to Ted Baker in a London lawsuit, the FRC said. This was in breach of ethical standards and led to the loss of KPMG’s independence in respect of the company’s audits.
“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,” Claudia Mortimore, interim executive counsel at the FRC, said in a statement. “Where those standards are breached such that the auditor’s independence is lost, user confidence is likely to be undermined.”
The penalty is the latest blow to an accounting firm already reeling from severe critiques of its work. In June, the regulator issued a stark warning that KPMG’s audit work is unacceptable, days after it was fined 3.1 million pounds for its 2013 audits of technology company Quindell Plc.
"These stories just don’t go away," said Atul Shah, a professor of accounting at the University of Suffolk.
KPMG’s U.K. press office said the firm’s audit opinions on Ted Baker’s financial statements have not been called into question. KPMG continually seeks to review and improve its processes and in 2017 decided not to undertake expert witness work for any company audited by KPMG UK, according to the emailed statement.
Big Four Under Attack as Timid Accounting Regulator Gets Tough
Time for a Break? Britain’s Big Four Auditors Come Under Threat
The firm’s fine was reduced from 3 million pounds because it settled the case. Similarly, Barradell’s fine was cut from 80,000 pounds.
The accounting watchdog is ramping up misconduct fines after being called useless and toothless by lawmakers irate at the failure of the accounting industry to prevent several high-profile corporate collapses. Lawmakers repeatedly complained that lax accounting has contributed to some of Britain’s biggest corporate scandals. The U.K.’s Association of Accounting Technicians has also called for fundamental changes.
The FRC in June said KPMG’s audit work in the U.K. is of an unacceptable standard, adding that auditors don’t challenge management enough, aren’t sufficiently skeptical and are inconsistent in their execution of audits. The decline in quality over the last five years “is unacceptable and reflects badly” on efforts by previous leadership to improve the work, the watchdog said.
KPMG’s trouble isn’t limited to the U.K. A number of financial institutions in South Africa, include Absa Group Ltd. (formerly Barclays Africa) and the asset manager Sygnia Ltd., have cut or diminished their ties with KPMG recently, following a spate of revelations over the past 18 months.
The Bank of England’s Prudential Regulation Authority raised questions with financial institutions and other regulators to see whether there were risks to KPMG following criticism of its work for U.K. contractor Carillion Plc and in South Africa, the Financial Times reported in July, without saying where it got the information.
©2018 Bloomberg L.P.