REG - Financial RepCouncil - Sanctions against KPMG LLP and Anthony Sykes

Works co ukAnnouncement

26/04/2023 08:15

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RNS Number : 5105X  Financial Reporting Council  26 April 2023

 

Sanctions against KPMG LLP and Anthony Sykes

This Press Notice concerns the outcome of an investigation into the relevant
Statutory Auditor(s). It would not be fair to treat any part of this
announcement as constituting or evidencing an investigation into, or findings
in respect of the conduct of, any other persons or entities.

26 April 2023

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 ("KPMG") and Anthony Sykes, Audit
Engagement Partner (and a former partner of KPMG), in relation to the
statutory audit of the financial statements of TheWorks.co.uk plc (the
"Group") for the financial year ended 26 April 2020 (the "Audit").

The following sanctions have been imposed:

KPMG

·    A financial sanction of £1,750,000, reduced to £1,023,750 to
reflect the firm's co-operation and admissions, and the early disposal of the
case;

·    A published statement, in the form of a severe reprimand;

·    A declaration that the Audit report signed on behalf of the firm did
not satisfy the Relevant Requirements; and

·    An order requiring the firm to take action to mitigate the effect or
prevent the recurrence of breaches of the Relevant Requirements.

Mr Sykes

·    A financial sanction of £75,000, reduced to £43,875 to reflect Mr
Sykes' co-operation and admissions, and the early disposal of the case;

·    A published statement, in the form of a severe reprimand; and

·    A declaration that the Audit report signed by Mr Sykes did not
satisfy the Relevant Requirements.

KPMG and Mr Sykes admitted breaches of Relevant Requirements relating to the
audit of inventory existence including the requirements to plan and perform an
audit with professional scepticism, to prepare sufficient audit documentation
and to design and perform audit procedures in order to obtain sufficient
appropriate audit evidence.

KPMG's approach to the audit of inventory existence was flawed by a succession
of failings, such as, in particular:

·    Failure to respond appropriately to variances in stock counts
identified during controls testing, including by not investigating
management's explanations for those variances and by omitting the test results
from the audit file such that the audit file documentation provided a false
degree of assurance;

·    The adoption of a substantive testing approach (once the controls
testing had failed), without adequate consideration or consultation, based on
a subset of the same stock count results, from which the stock counts with
variances had been removed, as part of a selection process described on the
audit file as "random"; and

·    Failure to perform appropriate roll-forward and roll-back procedures.

The breaches occurred as part of a course of conduct that critically
undermined KPMG's approach to the audit of inventory existence which, whilst
not identified as a significant risk area, remained material to the Group's
balance sheet.  The Audit therefore failed in its principal objective of
providing reasonable assurance about whether the financial statements were
free from material misstatement. The Final Settlement Decision Notice does not
assert that there was a material misstatement in the financial statements. It
is not alleged that the breaches were intentional, dishonest, deliberate or
reckless.

The extent of co-operation provided by KPMG and Mr Sykes, who also admitted
their breaches at an early stage, is reflected in the significant discount
applied to the financial sanctions imposed upon them.

Claudia Mortimore, Deputy Executive Counsel, said:

"The admitted failings, which critically undermined KPMG's approach to the
audit of inventory at a retail entity, were rudimentary and should not have
occurred.  The financial and non-financial sanctions, which include measures
intended to enhance KPMG's second line of defence function, are aimed at
preventing a repetition of such failings in the future."

The Final Settlement Decision Notice is available
(https://www.frc.org.uk/getattachment/84e46dae-f269-4f6c-bd3e-e4486a14b627/2023-03-3-Rule-108-Final-Settlement-Decision-Notice.pdf)
here
(https://www.frc.org.uk/getattachment/84e46dae-f269-4f6c-bd3e-e4486a14b627/2023-03-3-Rule-108-Final-Settlement-Decision-Notice.pdf)
.

 

Notes to editors:

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.

 

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

 

Adam Mohamed, Senior Communications Manager, on telephone: 07920874687 or
email: a.mohamed@frc.org.uk.

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

 

 

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