October 16 marked the start of the disciplinary tribunal hearing into the audit botch involving KPMG and what used to be known as Equity Syndicate Management Limited (ESML). If the Financial Reporting Council (FRC) has its way, then the Big Four accountant could be slapped with a record £7 million fine.
The formal complaint being heard relates to ESML’s claims reserving process in the financial reporting years ending December 31, 2007, 2008, and 2009 and the provisions for outstanding claims included in the financial statements for those years of Syndicate 218, as well as the audit of the financial statements of the Lloyd’s syndicate.
Represented at the hearing by Rebecca Sabben-Clare, QC, the watchdog cited significant findings of misconduct and a “wholesale failure of the audit function,” reported The Times. In the FRC’s view, the sanction to be imposed must serve as a deterrent.
KPMG, however, believes a more appropriate penalty is only about half the amount put forward by the audit regulator. According to the report, a £7 million fine – which is £500,000 more than that faced by PwC over its work for retailer BHS – would be the biggest handed to a UK accountant.
Back in June, KPMG found itself paying a discounted fine of more than £3 million – down from £4.5 million originally – for conduct “significantly short” of standards over its audit of Quindell’s financial statements for the period ended December 31, 2013. The insurance company, whose biggest operating division was sold about three years ago, is now known as Watchstone Group.
“More serious than Quindell,” was how Sabben-Clare described the ESML case, which also implicates a former finance director.
Earlier this month the Competition and Markets Authority launched a detailed and immediate study to examine whether the audit sector is competitive and resilient enough to maintain high-quality standards.
