REG - Financial RepCouncil - Sanctions against KPMG and Michael Neil Frankish

Revolution BarsAnnouncement

08/03/2022 08:15

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RNS Number : 9938D  Financial Reporting Council  08 March 2022

 

Sanctions against KPMG LLP and Mr Michael Neil Frankish*

 
  08 March 2022

The Executive Counsel of the Financial Reporting Council (FRC) has imposed
sanctions against KPMG LLP and Mr Michael Neil Frankish in relation to
their audits of Revolution Bars Group Plc ("the Company") for the financial
years ended 30 June 2015 ("FY2015") and the 53 weeks ended 2 July 2016
("FY2016") (the "Audits"). Mr Frankish performed the role of Audit Engagement
Partner in respect of the audits on behalf of KPMG (although he was not a
partner in the firm).

The following sanctions have been imposed against KPMG:

·    A financial sanction of £1,250,000(adjusted for aggravating and
mitigating factors and discounted for admissions and early disposal to
£875,000);

·    A published statement in the form of a Severe Reprimand;

·    A declaration that the reports signed on behalf of KPMG in respect of
the Audits did not satisfy the requirement to conduct the audit in accordance
with relevant standards; and

·    A requirement for KPMG to analyse the underlying causes of the
breaches of relevant standards, to identify and implement any remedial
measures necessary to prevent a recurrence, and to report to the FRC at each
stage of the process.

 

The following sanctions have been imposed against Mr Frankish:

·    A financial sanction of £50,000 (adjusted for aggravating and
mitigating factors and discounted for admissions and early disposal to
£35,000);

·    A published statement in the form of a Severe Reprimand; and

·    A requirement for Mr Frankish, who moved to another firm in 2017, to
analyse the underlying causes of his role in the breaches of relevant
standards, to identify and implement any necessary remedial measures as part
of his appraisal and personal development arrangements, and to report to the
FRC at each stage of the process.

 

KPMG will also pay Executive Counsel's costs of the investigation.

KPMG and Mr Frankish have accepted failures in their work on the Audits of the
Company, a leading UK operator of premium bars and a newly listed entity. The
failings relate to three specific areas of the Audits: supplier rebates and
listing fees; share-based payments; and (for FY2016 only) deferred taxation.
The Company's financial statements for FY2015 and FY2016 contained various
misstatements which had to be corrected, some of which arose from the three
areas mentioned, and some of which were material to the financial statements
as a whole.

Consequently, the Audits failed to achieve their principal objective of
providing reasonable assurance that the financial statements were free from
material misstatement.

The failings in respect of supplier rebates and listing fees were aggravated
by the fact that the FRC had made auditors aware, through publications in 2014
and 2015, that such complex supplier arrangements were an area of particular
audit risk and would be a focus of its inspection activity.

In determining the sanctions to be imposed, Executive Counsel has taken into
account that these were serious breaches but were not intentional, dishonest,
deliberate or reckless, and that the Respondents provided a good level of
cooperation during the investigation, including making early admissions in
respect of the breaches. In addition, regard was had to Mr Frankish's good
prior disciplinary record and that he was a Director at the time of the work
in question and not a partner.

 

Jamie Symington, Deputy Executive Counsel to the FRC, said:

 

"KPMG's failings in this case persisted for two years and across multiple
areas. They included complex supplier arrangements which the FRC had
previously identified as an area of regulatory focus, albeit that in this case
their impact on the financial statements was minor. The audit client was a
newly listed and relatively small company, but the breaches were nevertheless
serious, including lack of professional scepticism. The FRC has required KPMG
and Mr Frankish to take action to mitigate or prevent breaches recurring. The
package of financial and non-financial sanctions should help to improve the
quality of future audits."

 

The Final Decision Notice is available here
(http://www.frc.org.uk/document-library/enforcement/2022/kpmg-revolution-bars-final-decision-notice)
.

 

Notes to editors:

*The press notice must include the identity of a sanctioned person save where
(i) they are an individual and the publication of personal data would be
disproportionate; (ii) publication would jeopardise the stability of financial
markets or an ongoing criminal investigation; or (iii) would cause
disproportionate damage to any institution or individual involved (para. 16(b)
and para. 18 of the Publication Policy).

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.

 

Further details of the Sanction are available on the FRC website and can be
found here
(http://www.frc.org.uk/auditors/audit-quality-review/auditor-regulatory-sanctions-procedure/sanctions-against-mazars-january-2022)
.

Past FRC Enforcement Outcomes
(https://www.frc.org.uk/getattachment/bf5523d7-1329-4b58-8d13-091e8ee7cc74/Enforcement-sanctions-imposed-against-Audit-firms-and-Audit-partners-03-09-2021.pdf)
 can be found here.

 

The FRC is the independent body responsible for, amongst other things,
monitoring the quality of major local audits in England. The monitoring and
inspection of major local audits are conducted by the FRC's Audit Quality
Review team.  The FRC's Auditor Regulatory Sanctions Procedure (ARSP) applies
to failures or suspected failures to comply with the Regulatory Framework for
Auditing. A copy of the ARSP is available on the FRC's website and can be
found here
(https://www.frc.org.uk/auditors/audit-quality-review/auditor-regulatory-sanctions-procedure)
.

 

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

·      William Boyack, Senior Communications Manager, on telephone: 020
7492 2307 / 07480210166 or email: w.boyack@frc.org.uk
(mailto:w.boyack@frc.org.uk) .

 

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