The Financial Reporting Council has been looking into how their auditors, KPMG, singed off their accounts in 2016 as "true and fair", when they weren't. It turns out the signing-off was done before the audit was finished, though it was also so sloppily done I wonder if that mattered.
Last year there was a hugely long report of an FRC disciplinary tribunal into some KPMG staff who lied and faked documents for a formal professional revue of this and another audit. That cost KPMG over £20M. Yesterday,
the FRC published their much shorter and punchier verdict on the conduct of audit itself. That'll cost them more than £26M - or would, except it's reduced by 30% for being cooperative.
It's pretty damning, summarised for the FRC as:
The credibility of reports and opinions issued by auditors in connection with financial statements depends upon beliefs concerning the integrity, objectivity and independence of auditors and the quality of the audit work performed.
The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit. This is reflected in the financial sanction imposed on KPMG LLP, the highest ever imposed by the FRC.
Many of the breaches involve failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain sufficient appropriate audit evidence. The breaches in relation to the 2016 audit even include failing to ensure that the audit process itself was properly managed and that the audit file was a reliable record. These requirements lie at the heart of proper auditing.
The seriousness of the failings in the 2016 audit is compounded by the breaches of the Ethical Standards relating to the fundamental principles of objectivity, independence, and integrity.
