On this week’s episode of “KPMG Did Something Bad” …
A U.K. regulator on Tuesday fined KPMG LLP and three executives after an investigation that found misconduct in relation to the audit of financial statements of a Lloyd’s of London insurance syndicate.
The Financial Reporting Council, Britain’s watchdog for accounting and audit, fined KPMG £6 million ($7.8 million) and “severely reprimanded” the Big Four accounting firm for its failings in relation to audits of Lloyd’s Syndicate 218, a motor insurance provider.
The investigation zeroed in on KPMG U.K.’s audits of the 2007, 2008, and 2009 financial statements of Syndicate 218, which is also known as Equity Red Star Insurance.
Syndicate 218 had been bleeding money for several years due to a large number of personal injury claims.
KPMG put the audit in the hands of partners Mark Taylor and Anthony Hulse. Whoops! Bad move.
KPMG, Mr. Taylor and Mr. Hulse made insufficient inquiries into Syndicate 218’s processes to review insurance claims, and didn’t take action when reserves used to cover these claims declined, according to the FRC.
“We are disappointed that aspects of our 2008 and 2009 audits were found not to have met the standards set by our regulator,” a KPMG spokesman said. KPMG has since overhauled its approach to insurance audit, the spokesman said.
Taylor was fined £100,000 and will be required to have a second partner review his audits until the end of 2020, according to the WSJ. He also received a severe reprimand from the FRC.
Hulse, who no longer works for KPMG, received a fine of £100,000 and a severe reprimand. KPMG also agreed to conduct an internal review and to report to the FRC on aspects of its 2018 insurance audits.
Some dude from Equity Syndicate Management Ltd. was also reprimanded by the FRC.
Even though KPMG auditors have been on the struggle bus for quite some time now, the FRC decided now would be a good time to launch an investigation into why KPMG U.K.’s audit practice has been so bad.
The FRC will be examining KPMG’s risk management, controls, and the behavior of partners and other employees in the audit practice.
The FRC called it an “independent” investigation because it will be conducted by A&O Consulting, the consulting practice of international law firm Allen & Overy LLP. But the FRC—which at this point has no fucks left to give because it will be abolished in less than a year in favor of the Audit, Reporting and Governance Authority—hired A&O despite its CEO, Sally Dewar, being an ex-Klynveldian, calling into question whether the review of KPMG’s audit practice will really be independent.
The FRC’s review of KPMG will be concluded during the course of this year and could result in recommendations for changes at the firm.