REG - Financial RepCouncil - Sanctions against KPMG and former audit partner

Logistics DevelopmentAnnouncement

29/06/2023 08:15

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RNS Number : 2814E  Financial Reporting Council  29 June 2023

Sanctions against KPMG LLP and former audit partner

 

29 June 2023

 

This Press Notice concerns the outcome of an investigation into the relevant
Statutory Auditor(s). The investigation does not relate to any persons other
than the relevant Statutory Auditor(s) and it would not be fair to treat any
part of this announcement as constituting or evidencing an investigation into
any other persons or entities.

 

The Executive Counsel of the Financial Reporting Council (FRC) has issued a
Final Settlement Decision Notice under the Audit Enforcement Procedure and
imposed sanctions against KPMG LLP and Nicola Quayle, a former partner of KPMG
who was the Statutory Auditor and Audit Engagement Partner, in relation to the
statutory audit of the financial statements of Eddie Stobart Logistics plc
(ESL) for the financial year ended 30 November 2017.

The sanctions are:

Against KPMG:

·    A financial sanction of £1.35 million, discounted for admissions and
early disposal to £877,500.  KPMG's poor disciplinary record was noted as an
aggravating factor;

·    Non-financial sanctions, comprising:

a.   a Severe Reprimand;

b.   a declaration that the 2017 audit report did not satisfy the Relevant
Requirements; and

c.   an order requiring KPMG to take specified actions to prevent the
re-occurrence of the contravention.

Against Ms Quayle:

·   A financial sanction of £70,000 discounted for admissions and early
disposal to £45,500.  Notable aggravating factors were Ms Quayle's seniority
at the point of signing the audit report and past disciplinary record;

·    Non-financial sanctions, comprising:

a.   a Severe Reprimand; and

b.   a declaration that the 2017 audit report did not satisfy the Relevant
Requirements.

Ms Quayle ceased performing Statutory Audits in 2020 and no longer holds a
practising certificate. She has provided an undertaking that she will not
carry out Statutory Audits or sign Statutory Audit reports in the future.

ESL, a company operating in the supply chain, transport and logistics
business, was listed on the Alternative Investment Market. KPMG performed the
2017 audit and resigned as auditor in 2018, because of a breakdown in their
relationship with ESL's management, following difficulties in obtaining
sufficient appropriate audit evidence.

In July 2019, ESL announced that a review had been conducted into its prior
year financial statements. Following this review, in 2020, ESL disclosed
significant prior year accounting adjustments to the 2017 financial year.
KPMG and Ms Quayle breached Relevant Requirements in some of the areas which
were subject to prior year adjustments.

Broadly, the admitted failings related to the audit work carried out on:

·    property transactions entered into by ESL, and the disclosure in the
financial statements regarding those transactions.  These transactions had a
significant effect on ESL's financial performance, and without the profit
generated from them, ESL would have been in a loss-making position;

·    dilapidations; and

·    accounting for a subsidiary company.

In respect of the property transactions, the auditors failed to obtain
sufficient appropriate audit evidence of services provided by ESL in those
transactions to allow revenue to be ascribed to the provision of those
services and recognised up-front in the financial year.  Further, the
disclosures in the financial statements relating to the property transactions
did not adequately explain the impact of those transactions on ESL's financial
performance.

The failings were serious but not pervasive.

Claudia Mortimore, Deputy Executive Counsel, said:

"There were some serious failings admitted in this case; although they were
not pervasive throughout the audit.  The case highlights the importance of,
firstly, the auditor's work in ensuring that disclosures in financial
statements enable users to understand the impact of particular transactions on
the entity's financial performance; and secondly, ensuring that advice
received in technical consultations is effectively implemented."

The Final Decision Notice is available here
(http://www.frc.org.uk/document-library/enforcement/2023/final-decision-notice-and-kpmg-again-kmpg-and-ms-q)
.

 

Notes to editors:

1.   The FRC's purpose is to serve the public interest by setting high
standards of corporate governance, reporting and audit and by holding to
account those responsible for delivering them. The FRC sets the UK Corporate
Governance and Stewardship Codes and UK standards for accounting and actuarial
work; monitors and takes action to promote the quality of corporate reporting;
and operates independent enforcement arrangements for accountants and
actuaries. As the competent authority for audit in the UK the FRC sets
auditing and ethical standards and monitors and enforces audit quality.

2.   Past FRC Enforcement Outcomes
(https://www.frc.org.uk/getattachment/241860c7-34e0-428c-a17c-82781373cd00/Enforcement-sanctions-imposed-against-Audit-firms-and-Audit-partners-September-2022.pdf)
can be found here.

3.   To meet its responsibility as the competent authority in respect of
audit enforcement, the FRC operates the Audit Enforcement Procedure
(https://www.frc.org.uk/getattachment/26e687a9-05a1-47bd-861d-497b22678c24/FRC-Audit-Enforcement-Procedure_January-2022.pdf)
. This procedure applies to the investigation and sanctioning of breaches of
the various requirements of the statutory auditors of Public Interest Entities
(PIEs) and any other cases retained by the FRC including AIM companies with a
market capitalisation in excess of €200m. The procedure also applies to
matters that have been reclaimed from a Regulatory Supervisory Body by the
FRC.

Investigations are usually conducted by Executive Counsel and the Enforcement
Division. The FRC's Conduct Committee may direct that the investigation is
delegated to a Recognised Supervisory Body (RSB) which will provide an
investigation report to the Executive Counsel so that she may decide whether
to issue a Decision Notice.

4.   All media enquiries should be directed to the FRC communications team:

·      Kate O'Neill, Director of Stakeholder Engagement and Corporate
Affairs, on telephone 07714415229 or email: k.oneill@frc.org.uk
(mailto:k.oneill@frc.org.uk) .

·      Adam Mohamed, Senior Communications Manager, on telephone: 020
3145 9430 / 07920874687 or email: a.mohamed@frc.org.uk
(mailto:a.mohamed@frc.org.uk)

5.   If you no longer wish to receive press releases from the FRC please
email unsubscribe@frc.org.uk (mailto:unsubscribe@frc.org.uk) .

 

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