News June 2018 Sanctions in relation to the audit of Quindell plc

Sanctions in relation to the audit of Quindell plc

11 June 2018
The Financial Reporting Council (FRC) has fined and reprimanded the audit firm KPMG LLP and the Audit Engagement Partner William Smith following their admission of Misconduct in relation to the audit of the financial statements of Quindell plc for the period ended 31 December 2013.
 
The following terms of settlement have been approved by a legal member of the independent Tribunal Panel:
  • KPMG to receive a Reprimand and a fine of £4,500,000 (discounted for settlement to £3,150,000)
  • Mr Smith to receive a Reprimand and a fine of £120,000 (discounted for settlement to £84,000)
  • KPMG to pay a sum of £146,000 towards Executive Counsel’s costs. 
KPMG and Mr Smith, 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. The Misconduct related to two audit areas, and included failure to obtain reasonable assurance that the financial statements as a whole were free from material misstatement, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional scepticism. 
 
The audit areas were:
  • Revenue recognition for legal services; and
  • A series of transactions relating to the sale and purchase of software licenses, related services and investments.
Quindell made prior-year adjustments in both areas the following year, in their financial statements for the year ended 31 December 2014.
 
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. In relation to enforcement matters, 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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Rita CarolanCommunications Manager