The Financial Reporting Council (FRC) has imposed sanctions against KPMG and a senior statutory auditor over the audits of retailer Ted Baker.
The Big Four firm together with Michael Francis Barradell, senior statutory auditor and audit engagement partner, has been fined and reprimanded by the watchdog following admission of misconduct in the audits of Ted Baker’s financial statements.
The misconduct occurred during the financial years ending 26 January 2013 and 25 January 2014, and apply to Ted Baker plc and No Ordinary Designer Label Limited, which combined make up Ted Baker.
Settlement terms have been agreed by the FRC’s Executive Counsel. KPMG will receive a Severe Reprimand plus a fine of £3,000,000, which has actually been discounted due to the firm’s agreement to settle to £2,100,000.
The Big Four player will also have to pay £112,000 regarding the entirety of the Executive Counsel’s costs.
The offending Mr Barradell will also receive a reprimand of £80,000 which will be reduced to £46,800 due to mitigating factors plus a discount for choosing to settle.
The misconduct arose because KPMG provided expert witness services to Ted Baker in a Commercial Court claim.
This breached ethical standards and caused the loss of KPMG’s independence in the audits. There was a significant self-interest threat because the fees for the expert engagement exceeded the audit fees in the relevant years, which KPMG and Barradell failed to consider.
KPMG and Barradell both admitted their behaviour fell short of the standards expected of a member firm and member of the ICAEW. They failed to act as the body’s Fundamental Principle of Professional Competence and Due Care directs.
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.”