Report of the Presidential Tripartite Committee
PricewaterhouseCoopers LLP (PwC) and KPMG, two of the world’s largest “big 4” accounting firms were fined £4,550,000 and £6 million respectively for audit breaches in the United Kingdom.
On 13th June 2019, the Financial Reporting Council (FRC) UK’s regulator of auditors, accountants and actuaries, issued a Final Decision Notice under the Audit Enforcement Procedure to fine PwC £6,500,000 (discounted to £4,550,000 for admissions and early disposal) for breaches in regard to statutory audits of the financial statements of Redcentric PLC for the financial years ending 31 March 2015.
Redcentric PLC is a listed Managed IT Services provider in the UK.
Additionally Jaskamal Sarai and Arif Ahmad, two partners at PwC were fined £140,000 each and severely reprimanded.
KPMG on the other hand, was on 30th April 2019 reprimanded and fined £6 million for their misconduct, following FRC’s investigations in relation to the preparation and audit of Lloyd’s Syndicate 218 Report and Accounts for the years ended 31 December 2007, 2008 and 2009 and the provision of actuarial advice to Equity Syndicate Management Limited in relation to ESML’s reserving for Lloyds Syndicate 218 between 2007 and 2009.
The matter were referred to the FRC in 2012 and a formal complaint delivered to FRC in August 2016 following the conclusion of the FRC’s investigations. An independent tribunal made findings of misconduct following a hearing in December 2017 and sanctions were determined following a hearing in October 2018.
KPMG Partner, Mark Taylor was also fined £100,000, severely reprimanded and agreed to the imposition of a requirement to have a second partner review of his audits until the end of 2020.
Pressure mounts to split up UK’s “big four” accountancy firms to be split up
The fines come on the heels of pressure, in the UK to have the “big four” accountancy firms to be partially split up and forced to work with smaller rivals.
The big 4 are: PwC, EY, Deloitte and KPMG.
The House of Commons business, energy and industrial strategy select committee- a cross-party select committee who launched an inquiry into the future of audit in November 2018, recommended that UK’s Competition and Markets Authority (CMA) should break up the “big four” so as to avoid a repeat of a string of serious audit failures that have deeply undermined public confidence in the profession.
Although CMA resisted the calls for the breakup of the “big four” yet, it said, this option could be revisited within five years if the profession does not improve.
Instead, CMA said that in the face of “serious competition problems” in the sector, the UK government should pass new laws that force accounting giants to put “greater distance between their audit divisions and their more lucrative consulting operations, to prevent conflicts of interest”, according to the Financial Times.
Worldwide, the much sought after “big four” have been dogged by several cases of malpractices and the attendant fines.
For example, on June 17th, it was announced that the U.S. Securities and Exchange Commission had fined KPMG $50 million for altering past audit work after getting stolen information about inspections of the firm to be conducted by the Public Company Accounting Oversight Board.
This June, it was also reported that KPMG International, the firm’s global umbrella organization, was working with law firm Linklaters LLP on an independent investigation of KPMG Dubai’s work for Abraaj, the failed but once-highflying champion of emerging-markets investing.
KPMG work unacceptable
A 2017/18 report by FRC, showed that 72% of audits done by the 8 biggest audit firms required no more than limited improvements compared with 78% in 2016/17.
The 8 are: KPMG, PwC, Deloitte, Ernst & Young and BDO GT, Mazars and Moore Stephens.
While FRC noted problems at all the “big 4” firms, it singled out KPMG for the consistent poor quality of its work.
“There has been an unacceptable deterioration in quality at one firm, KPMG. 50% of KPMG’s FTSE 350 audits required more than just limited improvements, compared to 35% in the previous year. As a result, KPMG will be subject to increased scrutiny by the FRC,” said the statement.
FRC further noted that overall quality of the KPMG audits inspected in the year, and “indeed the decline in quality over the past five years, is unacceptable and reflects badly on the action taken by the previous leadership, not just on the performance of front line teams.”
In Uganda, KPMG was recently in the spotlight for taking two years to produce audit reports of the defunct Crane Bank for the period starting 1st January 2016 to 25th January 2017, despite being paid UGX921.7 by bank of Uganda for the job and other related works.
The audit was/is vital to providing clues to the whereabouts of UGX270 billion, out of the UGX478 billion that BoU claims it injected into Crane Bank as liquidity support, but the Auditor General could not trace.