A senior partner at KPMG's Newcastle office and the wider professional services firm have been fined by sector watchdog the Financial Reporting Council (FRC).
Nick Plumb, audit engagement partner, and his employer have been handed £70,000 and £1.25m sanctions respectively, discounted to £38,675 and £690,625 for cooperation with an investigation. The probe was launched two years ago into their handling of a statutory audit of North West-based agricultural and engineering services business Carr’s Group.
Mr Plumb and KPMG were found to have breached the FRC's 2019 Ethical Standard and International Standards on Auditing because they relied on the work of a third party firm which provided a statutory audit of Carr’s Billington Agriculture (Operations) Limited, an associated company. The unnamed firm's audit engagement partner had held the role for more than five years and the business had provided tax and accountancy services to the business.
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In a decision notice, the FRC stressed the breaches were "not dishonest, intentional or reckless" and that it did not call into question the quality of audit work carried out by KPMG or its unnamed third party. It said: "KPMG and Mr Plumb provided an exceptional level of cooperation during the investigation, including by self-reporting breaches of relevant requirements and volunteering relevant additional information. This conduct attracted a 15% discount in addition to the discount for admissions and early disposal."
In addition to its £690,625 financial sanction, KPMG LLP was handed a "severe reprimand" in the form of a published statement, a declaration that the Carr's Group plc 2021 accounts, signed on behalf of KPMG, did not meet requirements and that auditor reviewed other statutory audits involving third parties and reported back to the FRC on whether it was compliant. KPMG also paid the FRC's costs.
Meanwhile Mr Plumb also faced a severe reprimand in the form of the published statement and a declaration that the audit report he signed did not satisfy the FRC's requirements.
Jamie Symington, FRC deputy executive counsel, said: "A fundamental objective of any audit engagement is that the intended users trust and have confidence that the audit opinion is professionally sound and objective. It is of fundamental importance therefore that when seeking to rely on the work of a component auditor, the group audit firm can be satisfied that its independence is not compromised as a result of conditions that would compromise the independence of another firm on whose work it relies.
"In this case, whilst the quality of the audit work performed by the two firms is not brought into question, the breaches were serious. KPMG and Mr Plumb missed a number of opportunities in FY21 to establish the facts underpinning the breaches.
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"The breaches in the current case involve the failure to identify bright-line prohibitions designed to secure the independence of the statutory auditor. The respondents’ failings in this regard were of a basic and fundamental nature."
Cath Burnet, head of audit at KPMG 海角视频, said: "We accept that we did not meet the required standards in this instance. We cooperated fully with the FRC’s investigation, undertook remedial measures to address the findings, and are committed to driving continuous improvements in our audit practice.”