Watchdog to probe audits of accounts at Rolls-Royce

The UK's accountancy regulator has begun an inquiry into KPMG's audit of the accounts of Rolls-Royce following the aero-engine-maker's recent agreement to pay hundreds of millions of pounds to settle bribery and corruption claims.

KPMG said it was confident in the quality of its work on Rolls-Royce's accounts. Picture: Sean Gallup/Getty Images

The Financial Reporting Council (FRC) said the investigation will cover the accountancy giant’s audit of the books at Rolls-Royce for the years 2010 to 2013.

• READ MORE: Rolls-Royce agrees £671m settlement for corruption claims

The decision to investigate follows a Deferred Prosecution Agreement between Rolls-Royce and the Serious Fraud Office (SFO) in January, which saw the company pay £671 million to settle the allegations.

The FRC said: “The FRC has commenced an investigation under the Audit Enforcement Procedure into the conduct of KPMG Audit Plc, in relation to the audit of the financial statements of Rolls-Royce Group plc for the year ended 31 December 2010 and of Rolls-Royce Holdings plc for the years ended 31 December 2011 to 31 December 2013.

“The decision to investigate follows the SFO announcement on 17 January 2017 of a Deferred Prosecution Agreement between the SFO and Rolls-Royce which relates to offences including conspiracy to corrupt and a failure to prevent bribery.”

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The agreements relate to bribery and corruption scandals involving intermediaries in overseas markets such as Indonesia and China.

The engine maker first passed information to the SFO in 2012 after facing “allegations of malpractice” in the two countries, after which the fraud squad launched a formal investigation.

Officials for the firm said at the time its own investigations had found “matters of concern” in additional overseas markets.

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KPMG, one of the world’s largest accountancy groups, said: “It is important that regulators acting in the public interest should review high-profile issues.

“We will co-operate fully with the FRC’s investigation, which follows the SFO’s investigations into Rolls-Royce. We are confident in the quality of all the audit work we have completed for Rolls-Royce, including the 2010-13 period the FRC is considering.”

The firm has audited Rolls-Royce for 26 years, but is due to be replaced next year by PwC. In addition to the corruption allegations, Rolls-Royce has been hit by a string of profit warnings that triggered a slump in its share price.

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