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KPMG fined for lacking professional scepticism in audit failure

KPMG was reprimanded by the accounting watchdog and faced a financial sanction, which was discounted to £455,000 for admissions and early disposal, the FRC said in a statement on Thursday.

Further punishment was handed to Nicola Quayle, who was a senior partner at KPMG Manchester with 23 years’ auditing experience and was chair of KPMG’s audit and risk committee from October 2014 to September 2017.

Quayle was hit with a fine of £45,000, which was also discounted for admissions and an early resolution. The former senior partner was left to pay £29,250. In further punishment, Quayle also received a reprimand and must undertake appropriate training.

Responding to the case, Claudia Mortimore, Deputy Executive Counsel to the FRC reiterated that “professional scepticism remains at the core of an auditor’s duty”.

“This is a measured and proportionate package of sanctions, which balances on the one hand the limited nature of the breaches, which did not call into question the truth or fairness of the financial statements, with the fact that auditors should have been on alert to pay particular attention to these types of complex supplier arrangements.”

In a statement, KPMG said it regretted the specific aspects of its audit of the unnamed company that did not meet the required standards.

The sanctions were based on Quayle’s signing off the statutory audit of the financial statements of the unnamed company for the 2015/16 financial year, despite the company reporting two distinct categories of supplier rebates, namely, promotional income and overrider income.

Her failures included not explaining on the FY2016 Audit file why the audit risk of promotional income differed from that relating to overrider income and failing to obtain, and document audit work conducted on promotional income balances and on the reconciliation of overrider income.

As a result of the auditor’s failings, Quayle won’t undertake any statutory audits for two years. KPMG, meanwhile, has agreed to undertake a quality performance review of three statutory audits where Quayle served as the statutory auditor.

KPMG has a long list of recent examples of poor disciplinary history. In recent years the Big Four firm has been hit with a £5m fine for its audit of the Co-op bank, a £3m fine for the audit of Ted Baker, and a £6m fine for the audits of Lloyd’s Syndicate.

Quayle also has poor regulatory record. She’s already been the subject of four adverse audit quality reviews by the FRC between 2012 and 2016. For two of those reviews, Quayle was graded 2B which deemed her work “acceptable overall with improvements required” and the other two got the grade 3 “significant improvements required”. The audit in this sanction was included in the latter of those grades.



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