News August 2018 Sanctions against KPMG and Senior Statutory Auditor in relation to the audits of Ted Baker Plc

Sanctions against KPMG and Senior Statutory Auditor in relation to the audits of Ted Baker Plc

20 August 2018
The Financial Reporting Council (FRC) has fined and reprimanded KPMG Audit Plc (‘KPMG’) and Michael Francis Barradell, Senior Statutory Auditor and Audit Engagement Partner, following their admission of Misconduct in relation to their audits of the financial statements of Ted Baker Plc and No Ordinary Designer Label Limited (together “Ted Baker”) for the financial years ended 26 January 2013 and 25 January 2014 (“the Audits”). 

The following terms of settlement have been agreed by the FRC’s Executive Counsel and approved by a legal member of the independent Tribunal Panel:
  • KPMG to receive a Severe Reprimand and a fine of £3,000,000 (discounted for settlement to £2,100,000). In addition KPMG will pay £112,000 in respect of the entirety of the Executive Counsel’s costs.
  • Mr Barradell to receive a Reprimand and a fine of £80,000 (reduced to £46,800 after adjustment for mitigating factors and a discount for settlement).
KPMG and Mr Barradell admitted to the Misconduct prior to service of a draft complaint and this is reflected in the settlement discounts applied.

The Misconduct arose from KPMG providing expert witness services to Ted Baker in a Commercial Court claim.  This was in breach of the Ethical Standards and led to the loss of KPMG’s independence in respect of the Audits. There was a risk, which occurred, that the audit team would review the work of the expert when auditing Ted Baker’s treatment of the claim in its accounts and this posed an unacceptable self-review threat.  In addition, there was a self-interest threat arising from the fact that the fees for the expert engagement significantly exceeded the audit fees in the relevant years, which KPMG and Mr Barradell also failed properly to consider. The Executive Counsel did not allege that KPMG or Mr Barradell in fact lacked objectivity or integrity.
KPMG and Mr Barradell, members of the Institute of Chartered Accountants in England and Wales (ICAEW), have admitted that their conduct fell significantly short of the standards reasonably to be expected of a Member and a Member Firm and that they failed to act in accordance with the ICAEW’s Fundamental Principle of Professional Competence and Due Care.

Claudia Mortimore, Interim Executive Counsel at the FRC, 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.”


Notes to editors:
  1. The FRC’s mission is to promote transparency and integrity in business.  The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
  2. The FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process under the Accountancy Scheme are:
  • Decision to investigate
  • Investigation
  • Decision whether to bring enforcement proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
  • Tribunal hearing
  • Determination and imposition of sanction and/or costs orders

Under the Accountancy Scheme the FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.


The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.
Investigations are conducted by Executive Counsel and the Enforcement division.

  1. All Press enquiries should be directed to:
  • Peter Timberlake, Head of Communications, on telephone: 020 7492 2397/ 07768 502332, or email: p.timberlake@frc.org.uk.
  • Rita Carolan, Communications Manager, on telephone: 020 7492 2307/ 07428 149096 or email: r.carolan@frc.org.uk.
  • Alana Sinnen, Communications Manager, on telephone: 020 7492 2395/ 07949 005526 or email: a.sinnen@frc.org.uk.
  1. If you no longer wish to receive press releases from the FRC please email unsubscribe@frc.org.uk.
 

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Peter TimberlakeHead of Communications