Sanctions against KPMG and a partner
News types: Investigations, Publications, Statements
Published: 2 April 2020
The Financial Reporting Council (FRC) has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed sanctions against KPMG LLP (KPMG) and Nicola Quayle (formerly the Senior Partner for Manchester) (the Respondents), in relation to the statutory audit of the financial statements of a company for the 2015/16 financial year.
The following sanctions have been imposed:
1. A financial sanction of £700,000 (discounted for admissions and early disposal to £455,000);
2. A Reprimand;
3. A declaration by Executive Counsel that, as a result of the Adverse Findings set out in the Final Decision Notice, the Statutory Audit Report did not satisfy the Relevant Requirements; and
4. A requirement that, within a period of two years from the date of the Decision Notice, KPMG shall undertake a quality performance review (QPR) of three Statutory Audits for which Ms Quayle is the Statutory Auditor, such QPRs to be conducted by a Statutory Auditor from KPMG’s London office. KPMG shall report the results annually to the FRC.
- A financial sanction of £45,000 (discounted for admissions and early resolution to £29,250);
- A Reprimand; and
- A requirement for Ms Quayle to undertake appropriate training, in a format to be agreed with the FRC.
Whilst the Decision Notice does not question the truth or fairness of the company’s FY2016 financial statements, the breaches of Relevant Requirements related to the audit of items which were material to the consolidated income statement, albeit the scope of the breaches was relatively limited in nature. They concerned the Respondents’ failure to apply sufficient professional scepticism, or to obtain and document sufficient appropriate audit evidence, in relation to the statutory audit of the company’s reporting of two distinct categories of complex supplier arrangements; namely “Promotional Income” and “Overrider Income”.
The seriousness of the breaches was aggravated by the facts that:
- the FRC had made auditors aware, through publications in 2014 and 2015, that complex supplier arrangements would be an area of particular attention in its reviews;
- both KPMG and Ms Quayle have poor recent regulatory records; and
- Ms Quayle held senior management responsibilities within KPMG.
Executive Counsel’s determination as to sanctions reflects that:
- Ms Quayle has agreed that she will not undertake Statutory Audits of Public Interest Entities for a period of two years from the date of the Decision Notice;
- Ms Quayle has already received fines from KPMG in relation to the FY2016 audit, and in respect of her prior regulatory record; and
- The breaches of Relevant Requirements were not intentional, dishonest, deliberate or reckless
Claudia Mortimore, Deputy Executive Counsel to the FRC, said:
“This is a measured and proportionate package of sanctions, which balances on the one hand the limited nature of the breaches, which did not call into question the truth or fairness of the financial statements, with the fact that auditors should have been on alert to pay particular attention to these types of complex supplier arrangements. Professional scepticism remains at the core of an auditor’s duty and the FRC will take appropriate action where it has been lacking, as in this case.”
In accordance with the FRC’s Publications Policy, the FRC Executive having considered representations from the company has concluded that in all the circumstances naming the company is not fair and necessary in this case.
Final Decision Notice