KPMG hit with half of UK accounting fines as penalties reach new record

UK accountancy firms were fined a record £46.5mn last year, according to data released on Thursday, with more than half of the total levied against KPMG after its involvement in a series of audit failures and misconduct scandals.

The figures underline the depth of the problems at KPMG, which audits more FTSE 100 companies than any other firm and has been battling to clear a backlog of investigations into its work.

Fines across the industry rose to £46.5mn before discounts for admissions and settlements compared with £16.7mn a year earlier, according to data from the Financial Reporting Council. This eclipsed the previous record of £42.9mn from the year up to March 2019.

The level of fines after discounts, which are granted by the FRC to encourage firms to co-operate with its investigations, set a new high of £34.6mn.

KPMG received four fines, more than any other firm, resulting in penalties of £23.9mn against the group and its partners, reduced to £21mn after discounts. It was also ordered to pay millions of pounds to cover the costs of the FRC’s investigations.

The largest penalty against KPMG was a £13mn fine over a conflict of interest when it advised on the restructuring and sale of mattress company Silentnight in 2011 to a private equity group that it was trying to attract as a client. It was also fined over its audits of Rolls-Royce, Conviviality and Revolution Bars.

The figures exclude the £14.4mn fine imposed on KPMG this week, its largest ever in the UK, after an industry tribunal found its auditors had misled inspectors examining its audit of the 2016 accounts of Carillion, the collapsed outsourcer, and the 2014 accounts of UK company Regenersis.

KPMG said last week that a sharp improvement in its scores in the FRC’s annual inspections of audit quality showed its strategy was working. The watchdog welcomed the improvement but said it was “not yet a trend”.

Among the other firms, Grant Thornton was fined three times, including over its auditing of Patisserie Valerie, the café chain that collapsed due to a suspected fraud in 2019. The UK’s sixth-largest audit firm by revenue was also fined over its audits of failed government contractor Interserve and retailer Sports Direct, now called Frasers Group.

PwC was fined over its audits of construction groups Kier and Galliford Try, while EY and Deloitte were penalised once each.

All of the firms to receive fines reported increased profits in their most recent results, helped by booming demand for consulting and deals advice and rising audit prices.

The number of non-financial sanctions imposed by the FRC such as reprimands, exclusion from the profession or remedial actions, more than doubled to 62 in the year to March.

“High-quality financial reporting and audit are vital to provide users of financial statements with confidence in the accuracy of those statements and to uphold trust in corporate Britain,” said Elizabeth Barrett, FRC executive director of enforcement.

The increase in non-financial sanctions “reflects the ongoing emphasis placed on identifying the underlying causes of failure and effecting long-term positive change”, she said.

The number of people working in the FRC’s enforcement division rose by more than a fifth to 64 in the year to March. The regulator has expanded rapidly in anticipation of being renamed the Audit, Reporting and Governance Authority and gaining new powers under long-awaited reforms of the sector.