LONDON: The Executive Counsel of the Financial Reporting Council (FRC) has imposed sanctions against KPMG LLP and Mr Michael Neil Frankish in relation to their audits of Revolution Bars Group Plc (“the Company”) for the monetary years ended 30 June 2015 (“FY2015”) and the fifty three weeks ended 2 July 2016 (“FY2016”) (the “Audits”).
Mr Frankish carried out the role of Audit Engagement Partner in respect of the audits on behalf of KPMG (although he was not a partner within the firm).
The following sanctions have been imposed against KPMG:
· A monetary sanction of £1,250,000(adjusted for aggravating and mitigating factors and discounted for admissions and early disposal to £875,000);
· A published assertion within the type of a Severe Reprimand;
· A declaration that the reports signed on behalf of KPMG in respect of the Audits didn’t fulfill the requirement to conduct the audit in accordance with related standards; and
· A requirement for KPMG to analyse the underlying causes of the breaches of related standards, to identify and implement any remedial measures essential to prevent a recurrence, and to report back to the FRC at every stage of the process.
The following sanctions have been imposed against Mr Frankish:
· A monetary sanction of £50,000 (adjusted for aggravating and mitigating factors and discounted for admissions and early disposal to £35,000);
· A published assertion within the type of a Severe Reprimand; and
· A requirement for Mr Frankish, who moved to a different agency in 2017, to analyse the underlying causes of his role within the breaches of related standards, to identify and implement any necessary remedial measures as a half of his appraisal and private development arrangements, and to report back to the FRC at every stage of the process.
KPMG will additionally pay Executive Counsel’s prices of the investigation.
KPMG and Mr Frankish have accepted failures in their work on the Audits of the Company, a number one UK operator of premium bars and a newly listed entity. The failings relate to three particular areas of the Audits: provider rebates and itemizing fees; share-based payments; and (for FY2016 only) deferred taxation. The Company’s monetary statements for FY2015 and FY2016 contained various misstatements which needed to be corrected, a few of which arose from the three areas mentioned, and a few of which were materials to the monetary statements as a whole.
Consequently, the Audits failed to obtain their principal goal of offering reasonable assurance that the monetary statements were free from materials misstatement.
The failings in respect of provider rebates and itemizing charges were aggravated by the truth that the FRC had made auditors aware, through publications in 2014 and 2015, that such complex provider preparations were an space of particular audit risk and would be a spotlight of its inspection activity.
In figuring out the sanctions to be imposed, Executive Counsel has taken into account that these were serious breaches however were not intentional, dishonest, deliberate or reckless, and that the Respondents provided a good level of cooperation throughout the investigation, together with making early admissions in respect of the breaches. In addition, regard was needed to Mr Frankish’s good prior disciplinary record and that he was a Director on the time of the work in query and never a partner.
Jamie Symington, Deputy Executive Counsel to the FRC, said: “KPMG’s failings on this case persisted for 2 years and throughout a number of areas. They included complex provider preparations which the FRC had beforehand recognized as an space of regulatory focus, albeit that on this case their impact on the monetary statements was minor. The audit client was a newly listed and comparatively small company, however the breaches were nevertheless serious, together with lack of skilled scepticism. The FRC has required KPMG and Mr Frankish to take motion to mitigate or prevent breaches recurring. The package of monetary and non-financial sanctions ought to assist to enhance the standard of future audits.”