It looks like the ghost of Quindell has come to haunt audit firm KPMG LLP.
Making the announcement this morning, the Financial Reporting Council (FRC) has revealed a huge fine for KPMG in the UK over its audit of Quindell’s financial statements for the period ended December 31, 2013. Also being penalised is audit engagement partner William Smith.
“KPMG and Mr Smith, members of the Institute of Chartered Accountants in England and Wales (ICAEW), have admitted that their conduct fell significantly short of the standards reasonably to be expected of a member and a member firm and that they failed to act in accordance with the ICAEW’s Fundamental Principle of Professional Competence and Due Care,” said the FRC.
The accounting watchdog continued: “The misconduct related to two audit areas, and included failure to obtain reasonable assurance that the financial statements as a whole were free from material misstatement, failure to obtain sufficient appropriate audit evidence, and failure to exercise sufficient professional scepticism.”
Those audit areas were revenue recognition for legal services, as well as a series of transactions relating to the sale and purchase of software licenses, related services, and investments.
Following their admission of misconduct, KPMG and Smith were both reprimanded and fined.
KPMG’s fine amounted to £4.5 million, but has been discounted for settlement to £3.2 million. Smith’s, on the other hand, has been reduced to £84,000 from the original amount of £120,000. On top of the fine, the audit firm will have to pay £146,000 towards executive counsel’s costs.
Embattled insurance company Quindell, whose biggest operating division was sold to Slater and Gordon in 2015, is now known as Watchstone Group. It was hit with legal proceedings worth about £600 million when the Australian law firm sued following the loss-making deal, as well as a probe by the UK’s Serious Fraud Office.
