Big Four accountant KPMG has been reprimanded and fined £3.15m by the Financial Reporting Council (FRC) after admitting misconduct in its auditing of former personal injury alternative business structure Quindell.
William Smith, KPMG’s ‘audit engagement partner’, was fined £84,000, and the firm was ordered to pay a further £146,000 in costs.
The fines were reduced from £4.5m and £120,000 respectively due to a settlement deal.
However, the FRC has confirmed to Legal Futures that its investigations are not yet complete.
The FRC began its invetigation in August 2015 after Quindell’s 2014 accounts were published with substantial restatements of prior year revenues, profits and net assets.
Today’s announcement said KPMG and Mr Smith, both members of the Institute of Chartered Accountants in England and Wales, admitted that their conduct fell “significantly short” of the standards reasonably expected by the regulator.
“The misconduct related to two audit areas, and 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 scepticism.”
The FRC said the misconduct related to KPMG’s audit of the financial statements of Quindell plc for the period ending 31 December 2013.
The audit areas involved were “revenue recognition for legal services” and “a series of transactions relating to the sale and purchase of software licenses, related services and investments”.
The FRC’s initial announcement also referred to Quindell’s interim half-year results for 2014, and today’s sanction does not cover this period.
A KPMG spokesman said: “Audit quality, and professional scepticism in particular, is of paramount importance to our firm.
“We have co-operated fully throughout the FRC’s investigation, and have already updated our audit processes and procedures to address the areas of concern.
“We regret that some aspects of our audit for the year ended 31 December 2013 did not meet the required standards. As we stated in our audit opinion for the following year, certain information given to KPMG contradicted representations previously made by former members of management.
“Nonetheless, we accept the FRC’s findings that in two specific areas of the audit, our challenge for the year ended 31 December 2013 should have gone further.
“Due to ongoing investigations by the FRC and SFO we are unable to comment further.”
The Serious Fraud Office announced its investigation on the same day in 2015 as the FRC.
Quindell’s professional services division had been acquired by Slater & Gordon by then, and the law firm is currently suing Watchstone Group (as Quindell is now called) for fraudulent misrepresentation.
The FRC issued the first finding from the investigation into Quindell’s accounts in January this year, imposing a discounted fine of £700,000 on former auditors Arrandco Audit (formerly RSM Tenon Audit). Audit engagement partner Jeremy Filley was fined £56,000.
Both parties admitted misconduct in relation to the audit of the financial statements of Quindell Portfolio plc and Quindell Ltd for the period ending 31 December 2011.