Big firm audit failures rack up £46.5m in fines

The watchdog has reported a record year of financial sanctions and cases resolved in its fourth annual enforcement review.

With the audits of Patisserie Holdings, Stagecoach, Conviviality, Rolls-Royce and Galliford Try all leading to big fines for large audit firms, the Financial Reporting Council (FRC) has dished out fines totalling £46.5m during 2021–22 (£34.6m after settlement discounts) up to 31 March 2022. 

This is the highest total amount of sanctions in a year, with 2018–19 having the previously highest at £42.9m.

The number of fines has increased significantly from the previous two years, where the total pre-discount sanctions in 2020–21 was £16.7m and in 2019–20 it was £16.5m. The FRC put the increase down to an increased number of cases and the level of seriousness of some of the cases.

Sanctions in 2021–22

KPMG received the biggest fine of £13m after a former partner acted dishonestly while providing restructuring services to Silentnight in late 2010 and 2011, and the regulator pulled the firm up on failures to act with honesty, integrity and objectivity.

In this sanction David Costley-Wood advised both Silentnight and HIG, which was looking to acquire the retailer. The former KPMG partner hatched a plan to plunge Silentnight into an insolvency process, which would allow the private equity business to shirk the pension scheme liability as cheaply as possible. The FRC also confirmed that this was the largest financial sanction imposed in a non-audit matter to date.

The FRC imposed sanctions in 14 cases during 2021–22, with 12 for audit matters: one for the preparation and review of financial information and the KPMG Silentnight fine, which sits with the accountancy firm’s restructuring division.

The Big Four and Grant Thornton, in the case of Patisserie Valerie, performed all 12 cases concerning audits of FTSE and AIM listed-companies. 

Cases concluded with sanctions

Listed below are the sanctions of the published investigations: 

• Patisserie Holdings – Grant Thornton received a £4m sanction (reduced to £2.35m) 
• Stagecoach – EY received a £3.5m sanction (reduced to £2.205m)
• Conviviality – KPMG received a £4.3m sanction (reduced to £3.01m)
• Rolls-Royce – KPMG received a £4.5m sanction (reduced to £3.375m)
• Galliford Try – PwC received a £5.5m sanction (reduced to £3.038m)
• The non-audit case of Silentnight – KPMG received a £13m sanction
• Interserve – Grant Thornton received a £1.3m sanction
• Sports Direct – Grant Thornton received a financial sanction of £1.7m (reduced to  £1.1305m)
• Mitie Group – Deloitte received a financial sanction of £2.0m (reduced to £1.45m)
• Kier – PwC received a sanction of £3.35m (reduced to £1.96m)
• Revolution Bars Group – KPMG received a sanction of £1.25m (reduced to £875,000).

For anyone keeping tabs on which firm is leading the accountancy league table of sanctioned firms, KPMG leads the pack with £23.05m pre-discount fines. 

The FRC noted that a recurring trend featured in all bar two of the published sanctions was a lack of audit evidence, a lack of professional scepticism and a failure to document workings properly. 

In addition to the FRC’s record-setting year of financial sanctions, this year’s crop also marks a 100% increase in non-financial sanctions, up from 28 to 62. 

Commenting on the report, the FRC’s executive director of enforcement, Elizabeth Barrett said: “The level of financial sanctions imposed in the year underscores the important dissuasive role they continue to play, while the further increase in the use of bespoke non-financial sanctions reflects the ongoing emphasis placed on identifying the underlying causes of failure and effecting long term positive change. Such sanctions play a key part in our role as an improvement regulator.”