KPMG has been fined £3 million by the accountancy watchdog for misconduct in relation to audits of fashion retailer Ted Baker.
The Financial Reporting Council (FRC) said yesterday that it has sanctioned the accountancy giant and senior statutory auditor and audit engagement partner Michael Barradell.
KPMG is to receive a “severe reprimand” and the fine, discounted for settlement to £2.1m. In addition, KPMG will pay £112,000 in costs.
Barradell will receive a reprimand and a fine of £80,000, reduced to £46,800 after adjustment for mitigating factors and a discount for settlement.
The FRC’s sanction relates to the financial years ended 26 January 2013 and 25 January 2014. KPMG and Barradell have admitted misconduct.
The misconduct arose from KPMG providing expert witness services to Ted Baker in a commercial court claim, which the FRC said was in breach of ethical standards and led to the loss of KPMG’s independence in respect of the audits.
There was a risk, which occurred, that the audit team would review the work of the expert when auditing Ted Baker’s treatment of the claim in its accounts and this posed an unacceptable self-review threat.
In addition, there was a self-interest threat arising from the fact that the fees for the expert engagement significantly exceeded the audit fees in the relevant years, which KPMG and Barradell also failed properly to consider.
The FRC did not allege that KPMG or Barradell lacked objectivity or integrity.
Claudia Mortimore, interim executive counsel at the FRC, said: “Ethical standards are critical in supporting the confidence that third-party users can reasonably have in financial statements in circumstances where, of necessity, they only have incomplete information to judge whether the auditor is in fact objective.
“Where those standards are breached such that the auditor’s independence is lost, user confidence is likely to be undermined; the FRC makes clear by these sanctions the seriousness with which such breaches and their consequences are viewed.”
A KPMG spokesman said: “We are committed to upholding the highest standards of independence and regret that in this instance our processes fell short of the standards that we expect of our firm.
“We welcome the FRC making clear that they do not allege a lack of integrity or objectivity on KPMG’s part and we note that our audit opinions on Ted Baker’s financial statements have not been called into question.”
KPMG also faces FRC inquiries over its work with firms including Conviviality, and infrastructure group Carillion.