KPMG have been fined more than £3m over Quindell audit misconduct: it’s amazing nobody’s been put into prison for this. I mean The State will bang you up for not having a TV licence, but with this everybody gets to walk away. The fine was even slashed by £1m after the auditor agreed to settle the case with the Financial Reporting Council.
Partner censured for work with scandal-hit insurance software group
KPMG has been reprimanded and fined £3.2m by the UK accounting watchdog for misconduct in its work auditing scandal-hit insurance technology company Quindell.
William Smith, a KPMG partner who handled the Quindell audit relationship at the big four accounting firm, was also censured and fined £84,000, the Financial Reporting Council said.
Quindell, which has been renamed Watchstone, was originally a country club operator that briefly became the most valuable company on the junior Aim stock exchange in 2014, having raised money to buy businesses ranging from a law firm to a loft insulation group. Its shares were suspended in 2015 after Rob Terry, founder and chairman, was ousted and restatements of previous years’ accounts sparked investigations by the Serious Fraud Office and the Financial Conduct Authority, as well as the FRC.
In republishing its figures for 2014, 2013 and 2012, Quindell admitted that some of its accounting judgments had been “at the aggressive end of acceptable practice”, while reducing its previous calculations of revenues, profits and net assets.
In its statement yesterday, the FRC said KPMG and Mr Smith had “admitted that their conduct fell significantly short of the standards reasonably to be expected of a member and a member firm” of the Institute of Chartered Accountants in England and Wales, the accountants’ professional body, in auditing Quindell’s 2013 accounts.
KPMG and Mr Smith also “failed to act in accordance with the ICAEW’s fundamental principle of professional competence and due care”, the FRC said.
Until it sold its professional services arm to Slater and Gordon, Australian solicitors, for £637m in 2015, the bulk of Quindell’s business was a law firm that processed insurance claims and chased noise-induced hearing loss cases.
In its restated 2014 accounts, Quindell said that revenue recognition and cost deferrals within its legal unit were “not appropriate”.
KPMG had qualified its audit opinion for Quindell in 2014 — a method used by accountants when they are unsure if all relevant information and records have been provided to them — but did not do so the year before.
“We accept the FRC’s findings that in two specific areas of the audit, our challenge for the year ended 31 December 2013 should have gone further.”
For the 2013 accounting period, the FRC said KPMG and its partner exhibited a “failure to obtain reasonable assurance that the financial statements as a whole were free from material misstatement”.
The watchdog also said it failed to “obtain sufficient appropriate audit evidence” and “exercise sufficient professional scepticism”.
KPMG’s fine was originally set at £4.5m but was reduced after the auditor agreed to settle the case with the FRC.
Mr Smith’s original fine was £120,000, and was also discounted for settlement.
From the FT.