FRC to investigate KPMG’s Conviviality audit

FRC to investigate KPMG’s Conviviality audit

The FRC is investigating KPMG over its 2017 audit of Conviviality, which went into administation in April after finding an unexpected tax bill of £30m and issuing two profit warnings within a week

FRC to investigate KPMG’s Conviviality audit

The Financial Reporting Council (FRC) has launched an investigation into KPMG’s audits of Conviviality, owner of Bargain Booze, which went into administration in April.

The watchdog’s investigation will focus on the audit of financial statements for the year ended 30 April 2017 and will also look at a member of the ICAEW as part of the investigation, but has not disclosed who.

In March this year the drinks retailer found an unexpected tax bill amounting to £30m and issued two profit warnings within a week.

The first profit warning, a week prior to the tax bill discovery, said the company’s earnings would be £10m lower than expected due to an accounting error made by a member of the finance team.

Just days later the company issued its second profit warning, after the multimillion pound tax bill discovery created cash flow problems.

In response Conviviality stopped trading on the AIM market and its market value dropped by 60%.

PwC was hired to advise the company on its discussions with HMRC and creditors, and after the company failed to secure the needed £125m funding from investors, three PwC partners were appointed joint administrators in April.

A KPMG spokesperson said: “We believe we conducted our audit appropriately and will co-operate fully with the investigation.”

“As reported by the company, it experienced margin weakness at the start of 2018 and also a significant payment to HMRC which had not been included within its short term cash flow projections, creating a short term funding requirement.”

“Our audit of the company’s financial statements for the year ended 30 April 2018 had not yet commenced at the point which administrators were appointed.”

This is the latest audit investigation opened by the FRC following a string of large fines levied against Big Four firms.

The Audit Quality report released by the watchdog last month found declining audit quality across the Big Four, and KPMG’s audits were singled out as particularly problematic, with 50% of its audits requiring more than limited improvements.

KPMG was fined £4.5m last month for misconduct relating to its audit of Quindell and is still under investigation by the FRC for its audit work for Carillion.

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