November 21, 2018

Stop Me If You’ve Heard This One Before: FRC Reprimands KPMG U.K. for Crappy Audit

When it comes to the Financial Reporting Council and KPMG audits, it must be like shooting fish in a barrel. This time, the U.K. accounting watchdog fined KPMG £2.1 million ($2.7 million) on Aug. 20 following the Big 4 firm’s admission of misconduct on the audit of fashion company Ted Baker Plc’s financial statements in 2013 and 2014, according to a Bloomberg report.

In addition, Michael Francis Barradell, KPMG senior statutory auditor and audit engagement partner, was fined £46,800 by the FRC.

So, what did they do this time? (Say it in the tone of a parent resigned to the fate that his or her child is always getting into trouble. It’s fun!) Well, according to Bloomberg:

The misconduct arose from KPMG providing expert witness services to Ted Baker in a London lawsuit, the FRC said. This was in breach of ethical standards and led to the loss of KPMG’s independence in respect of the company’s audits.

“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,” Claudia Mortimore, interim executive counsel at the FRC, said in a statement. “Where those standards are breached such that the auditor’s independence is lost, user confidence is likely to be undermined.”

And according to an FRC press release, “there was a self-interest threat arising from the fact that the fees for the expert engagement significantly exceeded the audit fees in the relevant years, which KPMG and Mr. Barradell also failed properly to consider.”

KPMG’s fine was reduced from £3 million because the firm settled the case, while Barradell’s fine was reduced from £80,000 because he agreed to settle.

In an emailed statement to Bloomberg, KPMG said the firm’s audit opinions on Ted Baker’s financial statements have not been called into question. KPMG continually seeks to review and improve its processes and in 2017 decided not to undertake expert witness work for any company audited by KPMG U.K.

While each of the Big 4 firms has been reamed by the FRC lately for poor audit quality, KPMG seems to have gotten the brunt of the watchdog’s ire. Hell, the firm recently hired a risk management chief because of all the trouble it has been in.

Back in June, the FRC said KPMG auditors don’t challenge management enough, aren’t sufficiently skeptical, and are inconsistent in their execution of audits. The FRC called the firm’s decline in audit quality over the last five years “unacceptable.” This was after the watchdog fined KPMG £4.5 million (reduced to £3.2 million) for misconduct related to the audit of Quindell.

Then there’s the FRC’s ongoing investigation into KPMG’s auditing of the now-collapsed Carillion, which KPMG U.K. Chairman Bill Michael defended, and another FRC investigation into KPMG’s audit of British beverage wholesaler Conviviality’s financial statements.

Good thing KPMG has kept its nose clean in the United States and South Africa, right? Yeah. Right.

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SHOCKER: Number of Fraud Cases in the Courts is High

In probably the most shocking news of the day, KPMG’s “fraud barometer” reports that the number of fraud cases in UK courts in the first six months of the year are the highest since the firm started issuing the report, 21 years ago.
Here in the states, the big sexy fraud gets all the attention but there is plenty of small fraud to go around. Plus, the bright side is, we’ve haven’t seen anything yet:

“These figures are bad, but the worst is yet to come,” Hitesh Patel, a partner at KPMG, said. “It will be a number of years before the impact of the recession fully feeds through into the fraud statistics.”

So our advice would be for any of you that are nervous about layoffs, look into getting transferred to the forensic accounting practice. You won’t be out of work any time soon.
Record total of fraud cases in court – and worse to come []

Promotion Watch: KPMG

Forgive us for being a little behind on this, we’re still twisting arms out there:
On July 15th, the Radio Station announced the promotion of 874 new Senior Managers and Managers. This compares to 1,228 that got the bump last year.
Some might say that there were less people up for promotion this year, hence the drop. Others might say “that’s because I got the axe and now live on government cheese”.
Click on the image below for a full-size view of the announcement (please note the crookedness as a sign of authenticity). Anyway, congrats to all the new taskmasters managers at KPMG!