The UK’s Financial Reporting Council (FRC) has imposed fines on KPMG UK totalling £390,000 in relation to two separate cases of ethical standards breaches.
In the first case, the FRC fined KPMG and reprimanded partner Greg Watts in relation to the audit of UK automotive retailer Pendragon.
The firm was ordered to pay £162,500 for failing to consider whether the appointment of a former partner as non-executive director of Pendragon in December 2010 warranted the resignation of KPMG as auditors to the business.
The tribunal had initially determined a fine of £250,000, but adjusted the amount by 35% to reflect KPMG’s admissions throughout the hearing.
In 2012, Pendragon was forced to issue a correction following a £31.3m overstatement on the net and operating activities cash flow it reported as part of its financial results for 2011.
Among the misconduct findings against KPMG, the FRC criticised the firm’s failure to provide the motor dealer’s audit committee with full written disclosure of relationships that might have impacted the firm’s objectivity and independence.
Watts was reprimanded of failing to disclose his relationship to Pendragon’s audit committee.
Cable & Wireless Worldwide
The second case saw the FRC impose a fine of £227,500 on KPMG and £39,000 on the firm’s chief operating officer, James Marsh.
KPMG was penalised for failing to require Marsh to sell shares he owned in British multinational telecommunications services provider Cable & Wireless Worldwide (CWW).
Marsh became a partner for the Big Four firm in 2011, when KPMG was employed as an auditor to the business.
Another finding of misconduct against KPMG in the case was found in Marsh’s appointment to his role as chief operating officer less than two years after he had been in a position to exert "significant influence" over the financial statements of CWW.
In relation to KPMG, an initial fine of £350,000, proposed by the Tribunal, was adjusted by 35% to reflect the firm’s admissions.
The penalty against Marsh was imposed in relation to his failure to disclose the CWW shares in his possession upon entering KPMG as a partner.
Despite praising KPMG and the defendants’ constructive approach reflected in the fine reductions, FRC executive director of conduct Paul George said he welcomed the sanctions imposed by the tribunal, adding they "serve to emphasise the central importance of the Ethical Standards for Auditors to the audit process.
"As the Tribunal observes, they are at the very heart of trust in the audit process on which public confidence in capital markets and the conduct of public entities depends," he explained.