KPMG sanctioned for ‘rudimentary’ failings over The Works audit
The FRC has said the admitted failings were "rudimentary and should not have occurred"
KPMG has been fined £1.7m by the Financial Reporting Council (FRC) over its audit of retailer The Works.
The sanction, which was announced on April 26, was imposed concerning the audit of the financial statements of TheWorks.co.uk plc for the financial year ended April 26, 2020.
The financial fine KPMG has incurred will be reduced from £1.75m to just over £1m because of the firm’s cooperation and admissions to the investigation.
Claudia Mortimore, deputy executive counsel at the FRC, said: “The admitted failings, which critically undermined KPMG’s approach to the audit of inventory at a retail entity, were rudimentary and should not have occurred.
“The financial and non-financial sanctions, which include measures intended to enhance KPMG’s second line of defence function, are aimed at preventing a repetition of such failings in the future.”
Former KPMG partner Anthony Sykes was also handed a fine of £75,000, again heavily discounted (to £43,875) to reflect cooperation and admissions.
The FRC stated that KPMG and Sykes breached the relevant requirements to the audit of inventory existence including the undertaking of an audit with professional scepticism, providing sufficient audit documentation, and creating and performing audit procedures to obtain sufficient and appropriate audit evidence.
Moreover, the FRC said the audit conducted by KPMG was marred by a series of flaws such as a failure to respond appropriately to variances in stock counts identified during controls testing, and a failure to conduct the appropriate roll-forward and roll-back procedures.
The final settlement decision notice by the FRC does not declare that there was a “material misstatement” in the financial statements. Furthermore, it is not believed that the breaches by each party were “intentional, dishonest, deliberate or reckless”.
A second offence for Sykes
In May 2022, KPMG and Sykes were both sanctioned for the audit of the Rolls-Royce Group PLC, relating to the financial year ending December 31 2010. Both parties were heavily fined and reprimanded.
In response to the sanction, Cath Burnet, head of audit at KPMG UK, said: “We accept that elements of our work for the 2020 audit of The Works did not meet the professional standards required.
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