KPMG fined $2 million for ‘basic failings’ in 2018 audit of M&C Saatchi

The UK's accounting watchdog, the Financial Reporting Council (FRC), announced on Monday that it has imposed a fine of 1.46 million pounds ($1.90 million) on KPMG for 'basic failings' in its 2018 audit of advertising firm M&C Saatchi plc. 

The FRC initiated an investigation after M&C Saatchi identified accounting errors that necessitated a restatement of its 2018 accounts. Both KPMG and Adrian Wilcox, the KPMG audit engagement partner for M&C Saatchi, admitted to breaches related to failures to audit with adequate professional scepticism concerning a type of payment that amplified revenue by 1.2 million pounds.

The FRC reported a failure in proper auditing of journal entries across multiple subsidiary companies, along with a lack of documentation for the reasoning behind retention of rebates under a contract. The FRC added that the applied sanctions considered the challenging nature of the audit and the auditors' demonstration of robustness in delaying the signing date until more evidence was obtained from management. 

The FRC revealed that KPMG would have been fined 2.25 million pounds if it hadn't admitted to the breaches. Wilcox was fined 48,750 pounds and received a severe reprimand. However, by admitting to the breaches, Wilcox managed to avoid a 75,000 pound fine, according to the FRC.

KPMG UK has agreed to pay the costs of an investigation into its auditing practices. The firm's Head of Audit, Cath Burnet, expressed regret for not meeting required standards in the 2018 audit of M&C Saatchi. Burnet also stated that KPMG is committed to learning from past cases and is investing heavily in audit quality, training, controls, and technology. 

The FRC did not impose any additional sanctions on KPMG, as it is currently undergoing audit improvement programmes due to previous enforcement actions. This move is expected to reduce the possibility of repeating identified failings. Last October, KPMG was hit with a record 21 million pound fine by the FRC for failure in audits of builder Carillion.

(With Reuters inputs)