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KPMG junior spared, but bosses banned by FRC

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The Financial Reporting Council (FRC) confirmed on Monday 25 July that KPMG would have to pay a £14.4m fine for misleading inspectors reviewing its Regenersis and Carillion audits. The regulator handed out multi-year bans to partners and managers at the centre of the case.

25th Jul 2022
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As part of the FRC’s disciplinary findings, KPMG agreed to pay £3.95m costs on top of the £14.4m fine, which had been reduced by the tribunal from £20m as a result of its admission of wrongdoing co-operation with the investigation.

Partik Paw, the junior alleged to have created false minutes on the instructions of his boss, was given a severe reprimand but escaped a professional ban. The FRC tribunal ruled that while he had “acted without the integrity required of an accountant” by being a party to misleading audit quality review (AQR) inspectors, he had not acted dishonestly.

More senior colleagues were not dealt with as leniently, but the disciplinary tribunal did exercise some discretion by lessening the length of the bans and the size of the fines handed out to the KPMG partners for their professional shortcomings:

  • Peter Meehan, who led the 2014 Regenersis and 2016 Carillion audits, was excluded from membership of the ICAEW for 10 years and fined £250,000. The ban and fine were less than the maximum potential sentence of a £400,000 fine and 15-year ban.
  • Alistair Wright, a KPMG group senior manager, denied any misconduct relating to the Regenersis audit, but was found by the tribunal to have prepared a misleading audit working paper with Adam Bennett on goodwill for Regenersis. He was fined £45,000 and banned from the ICAEW for eight years.
  • Adam Bennett was also alleged to have misled AQR inspectors about the goodwill paper and that Meehan, the non-audit relationship partner for Regenersis, played in the audit. He received a £40,000 fine and was banned from the ICAEW for eight years.
  • Richard Kitchen, a senior manager, was also implicated in creating the false minutes and Carillion audit documentation. He was banned for seven years and fined £30,000.

The FRC statement emphasised that the complaints for which KPMG and its staff were disciplined related to the provision of false and misleading documents and information to the AQR teams. “The formal complaint did not allege misconduct arising from the performance of the relevant audits, nor did it allege that in either case the financial statements had not been properly prepared,” the regulator said.

On the Carillion AQR inspection and the infamous year end clearance meeting minutes, the tribunal found that Meehan, Wright, Kitchen and Bennett were party to the dishonest misleading of the AQR inspectors. By following without question Wright’s instructions to create false minutes, the tribunal found Paw had acted without the integrity required of an accountant and became a party to the deliberate misleading of the AQR.

A further misconduct allegation relating to the meeting minutes was found not proved by the Tribunal.

“The seriousness of the misconduct that we have found proved scarcely needs explanation," commented the Tribunal. "Effective audits are essential to the financial system. Management and investors should be able to rely on the audited financial reports of the company in question. The purpose of AQRs is to assess, and where appropriate suggest improvements to, the effectiveness of audits.

"The effectiveness of the regulation of auditors and audits depends on the accurate disclosure to the AQR Team of the audit work carried out by the auditor. Misleading the AQR undermines the effectiveness of its work; indeed, it may deprive the AQR of any useful result”.

More analysis to follow…

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By Justin Bryant
25th Jul 2022 10:28

Shameful (but not surprising) stuff.

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By Hugo Fair
25th Jul 2022 13:07

Indeed ... and, whilst it's good to see some 'seniors' having to take responsibility, how hard will it really hit them?
Showing my naivety but what is the consequence of the 'ban' (that isn't explained)? Is it just being "excluded from membership of the ICAEW"?
Because if so doesn't that become less & less of a hindrance as you reach the higher echelons of the greasy pole (where all those nurtured 'contacts' finally bear fruit)?

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By Hugo Fair
25th Jul 2022 13:02

C'mon John, don't leave us on tenterhooks ...

"A further misconduct allegation relating to the meeting minutes was found not proved by the Tribunal.
More analysis to follow…"

So what aspect was found to be not proven (which I thought was a Scottish legal concept) - we need the full story!

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Replying to Hugo Fair:
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By Paul Crowley
25th Jul 2022 13:19

I always thought Not Proven suggests a stain

In Scotland, there have been attempts to abolish what Sir Walter Scott famously called that [***] verdict.[8] In 1827, Scott, who was sheriff in the court of Selkirk, wrote in his journal that "the jury gave that [***] verdict, Not proven.[9]

Copied from WIKI but Aweb does not like the word that means born out of wedlock

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By plummy1
27th Jul 2022 12:13

I do wonder how significant the £250,000 fine is to the partner in question. Is it based on the seriousness of the offence or their ability to pay? Given the firm and the partners seniority I imagine they will still be pretty comfortable after they have paid up.

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By JamesDS
28th Jul 2022 09:45

Who actually pays those fines? Do the employers indemnify? Does a malpractice insurance kick in? I can't see the actual person having to pay them, surely?

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