Britain’s accounting watchdog has fined KPMG £1.5 million ($1.9 million) over its failings in the run up to an accounting scandal at the advertising firm M&C Saatchi.
KPMG and its partner Adrian Wilcox failed to audit with sufficient professional skepticism, according to the Financial Reporting Council, which published a decision notice on Monday.
Wilcox was fined £48,750.
M&C Saatchi was placed under investigation by the FRC after an accounting crisis which was followed by a series of profit warnings and its shares being suspended when it came to light in 2019.
M&C Saatchi made a series of leadership changes last year in an attempt to bounce back. Executive Chair Zillah Byng-Thorne joined from publishing company Future Plc where she had been chief executive officer, while Bruce Marson’s role as interim chief financial officer was made permanent.
A takeover attempt by shareholder Vin Murria failed in 2022.
The company was co-founded in 1995 by brothers Maurice and Charles Saatchi, the advertising gurus known historically for their political campaign work for Britain’s Conservative Party. They no longer sit on the board.
Standards
M&C Saatchi has admitted to accounting errors and misjudgments, including £14 million of direct misstatements of profits before tax.
As a result, the FRC has been probing the company’s accounts, and its relationship with KPMG, the auditor until after its 2018 accounts.
“KPMG’s audit did not meet the required quality standards in a number of respects amounting to serious audit failings and breaches of audit standards,” said Claudia Mortimore, deputy executive council at the FRC, in a statement.
The breaches including a failure to properly audit journal entries across a series of subsidiary companies, and a failure to identify potentially high-risk journals, according to the FRC. The audit team did not consider whether journals needed to be checked because they increased apparent profitability.
It also included a failure to document the auditors’ reasoning in relation to the retention of rebates under a contract which appeared to require these rebates to be passed back to a client.
Discounted fines
KPMG’s fine was reduced from £2.25 million, due to admissions and early payment, while Wilcox’s was discounted from £75,000.
“We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi Plc fell short of required standards,” said Cath Burnet, head of audit at KPMG UK, in a statement.
Contacted through KPMG, Wilcox declined to comment.
Source:norvanreports