KPMG fined for breaching audit independence rules

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The UK accounting regulator has fined KPMG £690,000 for relying on another firm’s work during its audit of agriculture and engineering group Carr’s, in breach of rules on auditor independence.

The Financial Reporting Council said on Thursday that KPMG should not have relied on the work by the smaller firm because it had sold other accounting and tax services to Carr’s and had failed to change its lead auditor at the required five-year mark.

The time limit and the restrictions on selling other services are designed to ensure auditors remain independent from the companies whose accounts they check.

The audit independence issues at London-listed Carr’s were unearthed in 2023 after KPMG was replaced by new auditors at Grant Thornton, resulting in a delay to the publication of the group’s 2022 results and the suspension of its shares for almost three months.

The fine follows a bruising run of sanctions and fines for KPMG, including for its work on the accounts of collapsed government contractor Carillion, for which it was fined a record £21mn. The FRC said last year that KPMG had made “notable improvements” in the quality of its audits in recent years.

The fine announced on Thursday related to KPMG’s reliance on another, unnamed, audit firm to check the accounts of a Carr’s subsidiary in the year to August 2021.

The FRC said the individual responsible for overseeing the audit of the subsidiary had been in the role for more than the permitted five years. The limit is designed to safeguard the independence of auditors from their clients.

The smaller audit firm had also sold tax and accountancy advice to the same company, breaching rules that limit how much advisory work an auditor can perform for a client.

The FRC’s investigation related only to KPMG. The regulator said the breaches “were not dishonest, intentional or reckless”. KPMG’s fine was reduced from £1.25mn in recognition of its co-operation with the investigation, which the regulator said had been “exceptional”.

A separate fine for KPMG’s lead partner on the audit, Nick Plumb, was also reduced from £70,000 to less than £39,000.

Cath Burnet, head of audit at KPMG UK, said: “We accept that we did not meet the required standards in this instance. We co-operated fully with the FRC’s investigation, undertook remedial measures to address the findings, and are committed to driving continuous improvements in our audit practice.”

Plumb declined to comment. Carr’s did not immediately respond to a request for comment.