REG - Financial RepCouncil - Sanctions against KPMG and Anthony Sykes

Rolls-Royce HoldingsAnnouncement

24/05/2022 08:30

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RNS Number : 5712M  Financial Reporting Council  24 May 2022

Sanctions against KPMG and Anthony Sykes

 

24 May 2022

 

The Executive Counsel of the Financial Reporting Council (FRC) has issued a
Final Decision Notice under the Audit Enforcement Procedure and imposed
sanctions against KPMG Audit plc (KPMG) and Anthony Sykes, Audit Engagement
Partner (together, the Respondents), in relation to the statutory audit of the
consolidated financial statements of Rolls-Royce Group plc (the Company) for
the financial year ended 31 December 2010 (the Audit).

 

The following sanctions have been imposed:

 

KPMG:

 

1.   A financial sanction of £4.5 million adjusted for admissions and early
disposal to £3,375,000; and

 

2.   Non-financial sanctions, comprising:

 

a.   a requirement that KPMG shall commission a review by an appropriate
external independent expert of the effectiveness of the firm's policies,
guidance and procedures for audit work in the area of an audited entity's
compliance with laws and regulations;

 

b.   a Severe Reprimand; and

 

c.   a declaration that the Statutory Audit Report for the Audit did not
satisfy the Relevant Requirements.

 

Mr Sykes:

 

3.   A financial sanction of £150,000 adjusted for admissions and early
disposal to £112,500; and

 

4.   Non-financial sanctions, comprising:

 

a.   a Severe Reprimand; and

 

b.   a declaration that the Statutory Audit Report for the Audit did not
satisfy the Relevant Requirements.

 

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

 

The Adverse Findings against each of the Respondents relate to failures to
address matters identified in the Audit which indicated risk of non-compliance
by the Company with laws and regulations. The matters concerned two sets of
payments made by the Company to agents in India. These payments gave rise to
allegations of bribery and corruption which later formed two (out of twelve)
counts in a Deferred Prosecution Agreement with the Serious Fraud Office in
2017, under which Rolls-Royce plc paid large fines.

 

Allegations of bribery and malpractice through the use of intermediaries and
'advisers' in the defence field were prominent at the time of the Audit,
including that in March 2010 [Defence Company A] paid large fines to settle US
and UK criminal investigations resulting from the use of intermediaries. KPMG
were well aware of these matters having also been auditors of [Defence Company
A].

 

The Adverse Findings, which were accepted by the Respondents, amounted to
serious failures to exercise professional scepticism, to obtain sufficient,
appropriate audit evidence and document this on the audit file, and to achieve
sufficient Engagement Quality Control.

 

Executive Counsel does not assert that the breaches resulted in the financial
statements being materially misstated.  Furthermore, the breaches were
limited to a discrete (albeit important) area of the Audit for one financial
year.

 

The FRC's investigation announced on 4 May 2017 was into KPMG's conduct of the
audits of the financial statements of Rolls-Royce Group plc for the year ended
31 December 2010 and of Rolls-Royce Holdings plc for the years ended 31
December 2011 to 31 December 2013. No findings of breaches have been made in
respect of the audits for the years ended 31 December 2011 to 31 December
2013.

Claudia Mortimore, Deputy Executive Counsel to the FRC, said:

 

"It is essential that auditors are alive to the risks of companies'
non-compliance with laws and regulations, and conduct work in this area with
care and sufficient professional scepticism.  This is particularly so when
the audited entity is in a sector where such risks are known to be
prevalent.

 

The package of financial and non-financial sanctions imposed in this case
should help to improve the quality of future audits."

A link to the Final Decision Notice can be found here
(http://www.frc.org.uk/document-library/enforcement/2022/kpmg-anthony-james-sykes-final-decision-notice)
.

 

 

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/bf5523d7-1329-4b58-8d13-091e8ee7cc74/Enforcement-sanctions-imposed-against-Audit-firms-and-Audit-partners-03-09-2021.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 (s)he 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.

·    William Boyack, Communications Manager, on telephone: 020 7492 2307/
07480 210166 or email: w.boyack@frc.org.uk.

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

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