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Micro-auditor of Gupta empire under investigation

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The accounting regulator has opened an investigation into the two-partner micro-auditor that signed off the accounts of Sanjeev Gupta’s steel empire.

 

4th May 2022
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King & King, which audited the accounts of 60 companies in the Gupta Family Group Alliance (GFG), is now facing an investigation from the Financial Reporting Council into four audits of Liberty Steel belonging to Sanjeev Gupta (pictured above right in 2016 with Scottish government minister Fergus Ewing).  

The regulator is looking specifically at the audit of four financial statements in the Gupta empire, including Liberty Speciality Steels Limited for the year ended 31 March 2019, Alvance British Aluminium Limited (formerly Liberty Aluminium Lochaber Ltd) for the year ended 31 March 2019,  Liberty Steel Newport Limited for the year ended 31 March 2019; and Liberty Performance Steels Limited for the year ended 31 March 2020.

King & King is not the usual Big Four firm expected to pick up the audits of the billion-pound empire-like GFG Alliance. The unassuming firm of chartered accountants and chartered tax advisers are based in central London. 

As explained on its website, the firm was established in 1956 and claims that its “clientele enjoy the benefits of our vast experience and personal service that few can equal”.

Thurst into the spotlight

When this tiny audit firm was thrust into the spotlight in the summer of 2021, questions were asked about how an unknown two-office firm like this is auditing 60 GFG companies in the UK with combined revenues of nearly £2.5bn 

The director of Tax Research UK, Richard Murphy told AccountingWEB at the time, “Is this firm so big they have other clients that Gupta, despite its apparent prominence, is only 15% of their fee income?”

The FRC decided to investigate the statutory audits by King & King in an FRC’s Conduct Committee on 22 February 2022. However, the watchdog emphasised in the press release that “the investigation does not relate to any persons other than the relevant statutory auditor(s) and it would not be fair to treat any part of this announcement as constituting or evidencing an investigation into any other persons or entities”.

Probe continues

The investigation comes as the Serious Fraud Office (SFO) continues its probe into the Gupta Family Group Alliance (GFG), and its financial relationship with Greensill, for suspected fraud, fraudulent trading and money laundering. 

Last week the SFO stepped up its investigation into Gupta’s empire by requesting documents, including company balance sheets, annual reports and correspondence, and questioned executives in multiple offices.  

Sanjeev Gupta has been under scrutiny since the collapse of Greensill and how this pushed Gupta-owned Liberty Steel to the brink of collapse. 

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By rememberscarborough
04th May 2022 11:16

Constantly being asked for copies of "audited" accounts and you have to wonder why. They may have had some worth years ago but these days they have no value whatsoever. Just a box ticking exercise for most trying to carry out risk assessments.

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By Hugo Fair
04th May 2022 12:44

The problem is that "audit" has passed into the population's general vocabulary, but without sharing a meaning (a common language) across all the scenarios in which it is used.

In basic terms it means to "conduct an official financial inspection of a company or its accounts" - but according to whose standards and using what methodology is highly variable.
A slightly more useful definition might be "to form a view on whether the information presented in the financial report, taken as a whole, reflects the financial position of the organisation at a given date" - but that still leaves lot of room for 'interpretation' over how the view was formed!

The "15% of fee income" control is meant to act as a deterrent to big companies simply buying the required result from a small auditor - which is no doubt why that's one of the things being checked here - but is not particularly effective if the practice deliberately sets out to provide a 'biddable' service from a smallish pool of large businesses.

You could argue (if in particularly cynical mood) that, if you don't get much from paying through the nose to one of the big 4/5/6, then why not get equally poor service at a lower price!
But the heart of the problem, as per all the recent stories, remains that if you are sufficiently motivated (as undoubtedly Gupta was) then it is tempting to find a biddable auditor - of which there appear to be no shortages.

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By maxmillion
05th May 2022 14:21

I'm curious if this Sanjeev Gupta is part of the Gupta family that enjoyed unprecedented benefits from their role in South Africa and alliance with the previous president, Jacob Zuma.

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By chasmeehan
05th May 2022 14:51

By "audited" you would hope that at least the bank balance has been confirmed and reconciled, but obviously only at a point in time.

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By SJH-ADVDIPMA
06th May 2022 08:00

Why cant a small firm audit a large one? As large audit firms are frequently shown to be incompetent, so size is no defence from bad audits / accountants.

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Replying to SJH-ADVDIPMA:
paddle steamer
By DJKL
11th May 2022 10:09

Ignoring available resources to undertake the audit, the main constraint is the individual audit fee as a percentage of the firm's turnover and their independence if they become very dependent upon just one client.

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