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KPMG fined over M&C Saatchi audit

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KPMG has vowed to ‘learn from past cases’ after being fined for its audit of M&C Saatchi to the tune of £1.46m.

4th Mar 2024
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KPMG has been hit with a £1.46m fine over “serious failings” in its statutory audit of global marketing services business M&C Saatchi.

The Financial Reporting Council (FRC) has issued a final settlement decision notice (FSDN) under the audit enforcement procedure and imposed sanctions against both the firm and audit engagement partner Adrian Wilcox, with the audit being for the financial year ended 31 December 2018.

The investigation was launched following M&C Saatchi's discovery of accounting errors – announced in 2019 – which ultimately led to a restatement of the FY2018 profit in the FY2019 annual accounts.

It looked at several elements of the audit including “revenue recognition, journal entries and the year-end consolidation process”.

Breaches of requirements

KPMG and Wilcox admitted breaches of relevant requirements, those being:

  • a failure to audit with sufficient professional scepticism the release of work-in-progress (WIP) credits, which increased revenue by £1.2m. These releases, processed as UK sub-consolidation adjustments, were subsequently reversed in the FY2019 annual accounts.
  • failures to properly audit journal entries across a number of subsidiary companies, including a lack of any journals-testing at all for two subsidiaries, and a failure to identify potentially high-risk journals for testing across a number of entities
  • a failure to document the auditors’ reasoning, or complete their enquires with management, in relation to the retention of rebates under a contract which, on its face, appeared to require such rebates to be passed back to a client. The level of professional scepticism was insufficient.

Challenging audit

The FRC noted that the sanctions imposed “have taken into account the fact that it was a challenging audit and the auditors demonstrated some robustness in pushing back the signing date until they obtained further evidence from management”.

“However, the breaches of relevant requirements included serious failings and, specifically, breaches relating to UK sub-consolidation adjustments affecting or potentially affecting a significant number of people in the United Kingdom such as the public, investors, or other market users.”

KPMG has been given a financial sanction of £2.25m, discounted for admissions and early disposal to £1.46m, and non-financial sanctions comprising:

  • a published statement in the form of a severe reprimand, and
  • a declaration that the audit report signed on behalf of KPMG did not satisfy the relevant requirements.

Wilcox has been handed a financial sanction of £75,000, discounted for admissions and early disposal to £48,750, and non-financial sanctions comprising:

  • a published statement in the form of a severe reprimand, and
  • a declaration that the audit report signed by Wilcox did not satisfy the relevant requirements.

KPMG has also paid the costs of the investigation.

Learning from past cases

Catherine Burnet, head of audit, KPMG UK, said: “We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi plc fell short of required standards.

“We continue to invest significantly in audit quality, in our training, controls and technology, to drive further improvements and resilience in our audit practice.”

Replies (5)

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By FactChecker
04th Mar 2024 11:03

I'm sure they feel the fine was cheap at half the price!

And since they “are committed to dealing with, and learning from, our past cases” - as they've said after each of their previous fines - they must by now have learned more than the human brain can accommodate.
So it's just as well that they also “continue to invest significantly in audit quality, in our training, controls and technology” - which against no benchmark means nothing - to ensure that there's somewhere to store all that learning.

Pity that there's no sign of anyone accessing it before or during Audits ...

Thanks (4)
Replying to Justin Bryant:
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By FactChecker
04th Mar 2024 16:01

Yeah, but ...

Whilst that's the obvious and logical meaning of the phrase, the vast majority of Google search results will take you to the concept that the phrase is now generally used idiomatically - typically as in:
* A deliberate transformation/inversion of a street trader's cry ('cheap at twice the price' to tell customers that what was being sold would still be cheap even if it cost twice as much) ... the inverted phrase is now used to indicate the same thing!

Thanks (4)
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By Rob Swan
05th Mar 2024 03:56

Deloitte/EY/KPMG/PwC* fined/investigated/etc.* for audit failure/fiasco*.
(*mix and match as appropriate ;)
Just part of the annual accounting calendar, isn't it?
When you make billions, a few million (in fines) is almost certainly cheaper than fixing the problem - that's what I call an 'accounting' decision!!

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By Mr J Andrews
05th Mar 2024 09:58

This four letter word keeps cropping up. One hell of a learning curve ?

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