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KPMG’s faces Conviviality investigation

The UK’s Financial Reporting Council (FRC) has launched an investigation into KPMG UK in regards to its work for the collapsed wine supplier and retailer Conviviality which went into administration in April.

The investigation will look into the audit conducted by KPMG for the year ended 30 April 2017. The UK’s accounting watchdog has also commenced an investigation into the preparation and approval of Conviviality’s financial statements other financial information by a member of the ICAEW.

Conviviality went into administration following two profit warnings issued in March after a mathematical error was found in its accounts and a £30m ($41.88m) tax bill was due to be paid to Her Majesty’s Revenues and Customs by the end of the month.

Need for trust

In an article published by The Times, KPMG UK head Bill Michael has said that large accounting firms need to re-assess their business models to prevent conflicts of interest. While Michael did not call for a break-up of the Big Four, he said “Being a multidisciplinary firm does not give you a blank slate to do anything you want to”.

Michael commented that it was important for the profession to regain public trust: “We can’t have a profession that isn’t trusted. It has consequences for society and the capital markets. You only need one bad apple to lose trust in the system. So I’m a proponent of making some of those changes.”

Separately, KPMG is also facing media scrutiny over its close ties to the Abraaj Group, a Dubai-based private equity firm, which has been accused by its investors of taking money from its funds and using it for purposes that were not sanctioned.

The Abraaj Group, which has now filed for a liquidation process in the Cayman Islands, was being audited by KPMG while the firm was also auditing at least nine of its biggest funds and also companies which Abraaj invested in, according to reports.

Media reports have speculated that KPMG staff members had close ties with the group, suggesting that one executive had alternated between stints at KPMG and as Abraaj’s CFO. A spokesperson for KPMG International told this magazine that while the executive had worked for both the firm and Abraaj he had not ‘alternated’ his time between the two businesses.

KPMG International has launched an investigation into the work conducted by its Dubai-based firm and has enlisted the help of law firm Linklaters. Currently, no external investigation is taking place. 

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