The Times - KPMG has been fined £2.1 million for misconduct in its work for the clothing chain Ted Baker after its auditors signed off numbers in its accounts that had been calculated by a consultant who also worked for the Big Four firm.
The Financial Reporting Council, which regulates auditors in the UK, said that the firm’s dual role “posed an unacceptable self-review threat” and “led to the loss of KPMG’s independence in respect of the audits”.
Michael Barradell, the KPMG partner responsible for the Ted Baker audit, was fined £46,900.
KPMG was paid almost £1 million for its consulting work, in which the forensic accounting expert Kathryn Britten advised Ted Baker on how much a legal claim brought against Axa Insurance, the retailer’s insurers could be worth. The size of the challenge was a material sum in Ted Baker’s financial results, which were audited by KPMG.
Ted Baker paid KPMG £952,000 for Ms Britten’s advice and £434,000 for the audit.
KPMG carried out the work in 2013 and 2015. One year later, regulators banned accountants in Europe from providing non-audit services to an audit client worth more than 70 per cent of the fees generated by the audit.
The FRC said that KPMG’s work was in breach of ethical standards and undermined confidence in the objectivity of an audit. “Ethical standards are critical in supporting the confidence that third party users can reasonably have in financial statements in circumstances where, of necessity, they only have incomplete information to judge whether the auditor is in fact objective,” said Claudia Mortimore, interim executive counsel at the FRC.
It is the second multimillion-pound fine levied by the FRC against KPMG so far this year. In June it fined the accountant £3.15 million and reprimanded it over its auditing of Quindell, the insurance technology company, and fined William Smith, the audit partner, £80,000. KPMG is also being investigated by the FRC into its work for Carillion in the years before the outsourcing company’s collapse.
KPMG is also facing a number of international scandals. In South Africa, the firm has haemorrhaged clients and cut hundreds of staff owing to its role in a government corruption scandal. In the US, the Securities and Exchange Commission in January charged three former KPMG partners with leaking confidential information in a bid to improve inspection results for the firm.
A spokesman for KPMG said: “We are committed to upholding the highest standards of independence and regret that in this instance our processes fell short of the standards that we expect of our firm.
"We welcome the FRC making clear that they do not allege a lack of integrity or objectivity on KPMG’s part and we note that our audit opinions on Ted Baker’s financial statements have not been called into question.”
Ms Britten has since left KPMG and now works for Alix Partners, a restructuring firm.
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