KPMG stung with £5m fine for Co-op Bank audit failures as breakup talks roll on
KPMG has been hit with a £5m fine for misconduct relating to an audit of Co-op Bank.
Audit partner Andrew Walker was also fined £125,000, with both “severely reprimanded” by the Financial Reporting Council (FRC).
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The Big Four audit giant and Walker admitted their conduct “fell significantly short” in an audit following Co-op Bank’s merger with the Britannia Building Society in late 2009.
KPMG failed to adequately audit Fair Value Adjustments to commercial loans Co-op acquired from Britannia, the FRC said today.
Both KPMG and Walker did not obtain enough audit evidence, and failed to show “sufficient professional scepticism” over the loans, as well as failing to tell Co-op Bank that there was an inadequate disclosure of the expected lives of Leek Notes.
The then chief financial officer of Co-op Bank, Barry Tootell, has previously admitted misconduct and has been banned from the Institute of Chartered Accountants in England and Wales for six years.
Walker’s fine was reduced to £100,000 in a settlement, while KPMG must pay £4m after settlement, as well as £500,000 in legal costs.
The audit partner, which received a £6m fine over a historic insurance audit just a week ago, will now have its 2019, 2020 and 2021 audits of credit institutions subject to an additional review by its internal audit quality team, who will report back to the FRC.
A KPMG spokesperson said: “We note the FRC’s announcement regarding our audit of the Co-op Bank for the year ended 31 December 2009.
“We regret that some of our audit work around specific elements of the Bank’s Fair Value Adjustments did not meet the appropriate standards.
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“The work in question was conducted almost a decade ago and we have significantly enhanced our procedures and training around the areas in question since then.”