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FRC launches probe into KPMG Conviviality audit

4th Jul 2018
Head of Insight AccountingWEB
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Investigation launched into KPMG Conviviality audit
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Investigation launched into KPMG Conviviality audit

KPMG’s work as auditor of Conviviality plc will be subjected to the scrutiny of investigators from the Financial Reporting Council (FRC).

In a brief statement issued on Tuesday (3 July), the FRC said it had invoked its audit enforcement procedure to launch a probe into the audit of Conviviality accounts for the 52 weeks to 30 April 2017.

The regulator is also investigating the work of an ICAEW member relating to the preparation and approval of Conviviality’s financial statements.

Conviviality went into administration on 5 April after announcing in March that it would undershoot its £70m revenue forecast for 2017 by 20%. The company later revealed £5.2m of that £14m was due to a material spreadsheet error in its financial forecasts. A couple of days later Conviviality announced it hadn’t budgeted for a £30m tax bill due at the end of March.

The announcements prompted a 60% fall in the company’s share price before trading was suspended by AIM on 14 March.

The investigation into KPMG comes just two weeks after it was singled out by the FRC for “unacceptable deterioration in quality” in this year’s Big Four audit quality review.  Half of KPMG’s FTSE 350 audits required significant improvements compared to 35% in the previous year.

“As a result, KPMG will be subject to increased scrutiny,” the FRC warned.

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Replies (5)

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By alan.rolfe
04th Jul 2018 11:22

For KPMG there seems to be two problems: the usual conflict of interest (i.e. being paid by the company for whom you need to be critical of) and, secondly, their staff recruitment/management issues.

Does the regulator have any real solution to either?

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By AndrewV12
05th Jul 2018 12:32

Extract above
'on 5 April after announcing in March that it would undershoot its £70m revenue forecast for 2017 by 20%. The company later revealed £5.2m of that £14m was due to a material spreadsheet error in its financial forecasts. A couple of days later Conviviality announced it hadn’t budgeted for a £30m tax bill due at the end of March.'

How can they walk away will excuses like the above, if the little guy was investigated by HMRC and used excuses like that with HMRC it would be treated as not a reasonable excuse.
It had not Budgeted for a 30m tax bill, it would not surprise me if they sat down and discussed their tax bill and other tax issues in great depth with KPMG, funny how they forgot it all when payment was looming.

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By AndrewV12
05th Jul 2018 12:37

Extract above
“As a result, KPMG will be subject to increased scrutiny,” the FRC warned.

Well if any one reading the above gets in trouble with HMRC / regulators, just play it straight hold your hands up and say 'yer alright we admit everything and will are willing to settle for increased scrutiny as our punishment' (we should be so bloody lucky).

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By andye
05th Jul 2018 16:50

Simply put the laws on ALL accountants should be tightened up. Whoever signs off accounts then found to either get it wrong or have mislead HMRC should have to foot the full tax bill and interest payments plus be struck off and jailed. Hard ? Nope I am a self employed electrician and if I paid fast and lose with electrics I would be struck off fined and if serious enough go to jail because of my negligence. Or maybe I could claim a spreadsheet error AYE right

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By gilderda
06th Jul 2018 17:30

Hot on the heels of PWC getting hit with a $625m fine in the US for failing to pick up a massive fraud at Colonial Bank, this is another swift kick in the sundries for a member of the "Big Four".

The problem is, where else are companies supposed to go for audits of this size? They effectively have the market boxed off between them in a cosy little cartel, irrespective of repeated failings.

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