KPMG gets reprimand from U.K. regulator over reserves audits
The U.K.’s accounting watchdog reprimanded KPMG after the firm admitted shortcomings in three years of work for a client, which had to restate its distributable reserves twice.
The Financial Reporting Council said the accounting firm admitted problems in its reserves audits of Foresight 4 VCT plc, and ordered KPMG to check compliance with revised audit procedures on company capital and distributions.
KPMG will have to report on its compliance to the regulator’s executive counsel, according to an FRC statement on Friday. The sanctions come after the FRC said KPMG’s errors “may have led to misstatements relating to distributable reserves in the company’s financial statements, which were later restated in 2016 and 2018.”
KPMG belongs to the so-called Big Four accountants, including Ernst & Young, which all have been beset by criticism in the U.K. Several instances of firms’ failure to flag the struggles of companies prior to bankruptcies have brought calls to break up their audit and consulting units.
KPMG said it regretted that “aspects” of its audits didn’t meet the required standards.
“As the FRC makes clear, the company’s profits and net asset value were not misstated in any of these years and there were no unlawful distributions made by the company in any of these years,” KPMG said in an emailed statement. “Audit quality is of paramount importance to our firm and we have already updated our audit processes and procedures to address the area of the audit where our work did not meet the required standard.”