The Financial Reporting Council (FRC) has sanctioned KPMG and audit engagement partner Anthony Sykes, following serious breaches in their audit of N Brown Group.
These breaches, acknowledged by both parties, relate to the financial statements for the year ending 26 February 2022.
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KPMG and Sykes have admitted to the breaches, which pertain to the audit work on impairment of non-current assets, a financial reporting aspect that ensures a company’s assets are not overstated.
The sanctions include a financial penalty of £710,937.50 ($955,550) for KPMG, after adjustments for cooperation and early admissions, and £51,187.50 ($68,799) for Sykes under similar considerations.
Both KPMG and Sykes have also received a severe reprimand, and a declaration that the auditor’s report for FY22 did not meet the relevant requirements.
The FRC’s investigation found several aspects of the audit work on impairment to be lacking, including the carrying value of the cash-generating unit, cash flow forecasts, impairment model methodology, discount rate, sensitivity analysis, reconciliation to market capitalisation.
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By GlobalDataN Brown, a major UK online retailer of clothing and footwear, was listed on the Alternative Investment Market of the London Stock Exchange at the time of the audit.
An indicator of impairment was present during FY22, as the group’s market capitalisation was significantly lower than its net assets.
FRC deputy executive counsel Jamie Symington said:
“In this case, there were numerous failings in relation to the audit work on impairment, despite it having been identified as a significant risk. This case demonstrates that the audit of impairment requires a substantial level of diligence, forethought, and careful exercise of judgement.”
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