KPMG fined £3.4m for ‘serious failure’ in Rolls-Royce audit


KPMG will fine the accounting regulator £3.4 million after admitting a failure in its audit of British jet engine maker Rolls-Royce, which paid a £500 million settlement over bribery charges.

The accounting firm has been subjected to harsh reprimands from regulatory body, the Financial Reporting Council (FRC), and the firm must refer to an independent review of the effectiveness of its policies.

It is the fourth fine the company has imposed this year.

KPMG partner Anthony Sykes, who led the audit, was also heavily rebuked before retiring from the company in September after being fined £112,500. Fines for the company and Sykes were reduced from £4.5m and £150,000, respectively, because they worked with regulators. KPMG will also pay the regulatory body for the investigation.

This is the latest in a series of scandals suffered by the four major accounting firms, all fined by millions of pounds for auditing, but later turned out to be a major failure.

Poor quality audits have been criticized, from bankrupt construction firm Carillion, which KPMG fined £14m this month, to retailer BHS, which fined PwC £6.5m. KPMG was also fined this year for work with alcohol distributor Conviviality and Revolution Bars.

Britain’s most prominent aerospace and defense manufacturer, Rolls-Royce, was fined 6 in 2017 after a lengthy investigation into allegations that it paid bribes to land export contracts, including £500m in the UK and other payments from the US and Brazil. agreed to pay £71 million. . Charges in the deferred prosecution agreement included conspiracy to commit fraud and corruption.

“In the defense sector, allegations of bribery and misconduct through intermediaries and ‘tortures’ were prominent at the time of the audit and should have been well known as KPMG was auditing another defense contractor that had just paid a large sum. Fines are levied to resolve criminal investigations, regulators said.

The “severe failure” highlighted by the FRC involved two payments to Indian brokers: £3.3 million and £1.9 million.

The auditor became aware of the payment in July 2010, but did not include a reference to this in the audit. Sykes also instructed managers to delete paragraphs referring to him from the minutes of the meeting.

Claudia Mortimore, FRC’s chief advisor, stressed the need for accountants to question clients’ claims.

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“It is important for auditors to be alive about the risks of non-compliance with the company’s laws and regulations and to conduct their work with prudence and sufficient professional skepticism in this area,” she said. “This is especially true if the audit target is in an area where such risks are known to be prevalent.”

KPMG UK chief executive John Holt said the fine was related to a “pre-existing incident” that occurred before he took over.

“We are delighted to have now brought this historic matter to an end and regret that elements of our work did not meet the required professional standards in the 2010 audit of the Rolls-Royce Group,” he said.

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