Sanctions against KPMG
12 June 2020
The Financial Reporting Council (FRC) has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed non-financial sanctions on KPMG in relation to the statutory audits of the financial statements of Foresight 4 VCT plc (“the Company”) for the 2012/2013, 2013/2014 and 2014/2015 financial years.
The following sanctions have been imposed:
- A Reprimand; and
- an order that KPMG monitor compliance with revised audit procedures on company capital and distributions, and report on this to the FRC’s Executive Counsel.
KPMG admitted shortcomings in its audits of figures relating to the Company’s distributable reserves. These failings may have led to misstatements relating to distributable reserves in the Company’s financial statements, which were later restated in 2016 and 2018.
Executive Counsel’s determination as to sanctions reflects that:
- KPMG has taken steps to improve its audit procedures on distributions;
- The breaches of Relevant Requirements were not intentional, dishonest, deliberate or reckless;
- There is no suggestion that there were insufficient distributable reserves to cover distributions made by the Company; and
- The misstated figures for the Company’s reserves did not affect the Company’s profits or net asset value.
A link to the Final Decision Notice can be found here
Notes to editors:
- The FRC’s purpose is to serve the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them. 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.
- Past FRC Enforcement Outcomes can be found here.
- To meet its responsibility as the competent authority in respect of audit enforcement, the FRC operates the Audit Enforcement Procedure. This procedure applies to the investigation and sanctioning of breaches of the various requirements of the statutory auditors of Public Interest Entities (PIEs) and any other cases retained by the FRC including AIM companies with a market capitalisation in excess of €200m.
In brief, the stages of the Audit Enforcement Procedure are:
- Initial case examination and decision to investigate
- Decision by Executive Counsel as to whether to issue a Decision Notice (a notice with the findings and recommended sanction);
- Referral to Enforcement Committee and decision by the Enforcement Committee whether to issue a Decision Notice; and
- Referral to a Tribunal
- In order for a matter to be referred for investigation by the FRC’s Executive Counsel under the Audit Enforcement Procedure, the FRC’s Conduct Committee is required to decide whether there is good reason to investigate an Allegation in relation to a Statutory Auditor and/or a Statutory Audit Firm.
Investigations are usually conducted by Executive Counsel and the Enforcement division. The FRC’s Conduct Committee may direct that the investigation is delegated to a Recognised Supervisory Body (RSB) which will provide an investigation report to the Executive Counsel so that (s)he may decide whether to issue a Decision Notice.
- Sanctions were imposed on KPMG LLP and KPMG Audit Plc.
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