KPMG fined £3.4m over Rolls Royce audit failings
Big four firm KPMG has been fined £3.4m over its audit of Rolls Royce.
The company was slapped with the penalty by the financial regulator over its failings to address problems at the company in a 2010 audit. This is the fourth fine imposed on KPMG in 2022 according to the FT.
The Financial Reporting Council (FRC) said the firm had failed to address issues identified in the audit, indicating a risk of non-compliance with laws and regulation.
Two sets of payments made by RR to agents in India were flagged up, giving rise to claims of bribery and corruption which later formed two counts in a Deferred Prosecution Agreement with the Serious Fraud Office in 2017, under which Rolls-Royce paid large fines. There were also claims of bribery and malpractice, including a claim the firm had paid fines to settle criminal investigations – which KPMG was aware of.
The FRC said KPMG showed “serious failures to exercise professional scepticism, to obtain sufficient, appropriate audit evidence and document this on the audit file” among other issues.
In addition to the financial sanction of $4.5m, adjusted to £3.4m because it co-operated with the inquiry, non-financial penalties were also imposed, including the requirement for KPMG to commission a review omit its policies, guidance and procedures for audit work.
KPMG’s Audit Engagement Partner Anthony Sykes was also penalised by the FRC, being sanctioned with fine of more than £100,000, a “severe reprimand” and statement that the audit did not satisfy relevant requirements.
Claudia Mortimore, Deputy Executive Counsel to the FRC, said: “It is essential that auditors are alive to the risks of companies’ non-compliance with laws and regulations, and conduct work in this area with care and sufficient professional scepticism. This is particularly so when the audited entity is in a sector where such risks are known to be prevalent.
“The package of financial and non-financial sanctions imposed in this case should help to improve the quality of future audits.”
Chief Executive of KPMG in the UK, Jon Holt, said: “When I came into my role as Chief Executive, I said that we would move swiftly to resolve and learn from our outstanding regulatory cases. I am pleased we have now concluded this historic matter and I’m sorry that elements of our work in the FY2010 audit of Rolls-Royce Group plc did not meet the professional standards required.
“In addition to resolving legacy cases, we are also investing significantly in training, controls and technology to improve quality and resilience in our audit practice.”