The Executive Counsel of the Financial Reporting Council has fined KPMG £3,375,000 over failures over the audit of the Rolls-Royce Group plc in 2010.
Partner Anthony Sykes was fined £112,50, and both received a ‘severe reprimand’.
The Adverse Findings against each of the respondents relate to failures to address matters identified in the audit which indicated risk of non-compliance by the company with laws and regulations. The matters concerned two sets of payments made by the company to agents in India. These payments gave rise to allegations of bribery and corruption which later formed two (out o f12) counts in a deferred prosecution agreement with the Serious Fraud Office in 2017, under which Rolls-Royce plc paid large fines.
Allegations of bribery and malpractice through the use of intermediaries and ‘advisers’ in the defence field were prominent at the time of the audit, including that in March 2010 [Defence Company A] paid large fines to settle US and UK criminal investigations resulting from the use of intermediaries. KPMG were well aware of these matters having also been auditors of [Defence Company A].
The adverse findings, which were accepted by the respondents, amounted to serious failures to exercise professional scepticism, to obtain sufficient, appropriate audit evidence and document this on the audit file, and to achieve sufficient engagement quality control.
Executive Counsel does not assert that the breaches resulted in the financial statements being materially misstated. Furthermore, the breaches were limited to a discrete (albeit important) area of the audit for one financial year.
KPMG will pay Executive Counsel’s costs of the investigation.
