In another blow to the U.K. operations of Big Four accounting firms, KPMG has been fined $4.2 million for deficiencies in its audit of a scandal-plagued legal services company.
The U.K.’s accounting watchdog launched an investigation of KPMG in 2015 after Quindell plc became the subject of multiple investigations into its financial statements. Quindell twice restated its accounts, leading to heavy losses.
On Monday, the Financial Reporting Council announced it had fined KPMG 4.5 million pounds ($6 million) — reduced to 3.15 million pounds ($4.2 million) for a settlement discount — saying the firm had admitted that its audits of Quindell fell “significantly short” of professional standards.
The audit engagement partner, William Smith, was fined 120,000 pounds ($160,800), discounted to 84,000 pounds ($112,580).
According to the FRC, the audit deficiencies related to revenue recognition and a series of transactions involving software licenses, related services and investments.
The misconduct included “failure to obtain reasonable assurance that the financial statements as a whole were free from material misstatement, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional skepticism,” the FRC said.
As The Guardian reports, “The settlement over Quindell comes with the audit profession – and KPMG in particular – under intense scrutiny in the light of the collapse of the government contractor Carillion, with [lawmakers] calling for a break-up of the ‘Big Four’ accountants.”
PwC was fined a U.K. record 6 million pounds, discounted to 5.1 million pounds, in August over its audit of finance firm RSM Tenon.
Quindell was a high-flyer on the U.K.’s junior stock market, its value soaring to 2.7 billion pounds, until doubts emerged about the validity of its reported profits. One short-seller called the firm a “golf club built on quicksand.”
The restatement of Quindell’s 2014 profits turned an 83 million pound profit into a 68 million pound loss.
KPMG said it had already updated its audit processes and procedures to address the FRC’s areas of concern, adding, “We regret that some aspects of our audit for the year ended 31 December 2013 did not meet the required standards.”