KPMG fined $5.2M by U.K. regulator for Co-op Bank audits
The United Kingdom’s Financial Reporting Council has fined KPMG’s U.K. firm £5 million (discounted through a settlement to £4 million, or about $5.2 million) for its fiscal year 2009 audits of the Co-operative Bank.
The FRC also severely reprimanded the firm for its audits and imposed sanctions against KPMG and one of its audit partners after they admitted misconduct in the case. The firm will also pay £500,000, or about $650,000, towards the FRC’s costs. The audit partner was fined £125,000 (discounted by settlement to £100,000, or around $130,000) and severely reprimanded.
On top of that, the FRC said that all of KPMG’s audit engagements with credit institutions for audits with 2019, 2020 and 2021 year-ends will be subjected to an additional review by a separate KPMG Audit Quality team, who will provide reports to the FRC.
The misconduct in the case happened shortly after the Co-op Bank’s merger with the Britannia Building Society and involved the audit of fair value adjustments in relation to loans within the commercial loan book acquired from Britannia; and the audit of fair value adjustments and liabilities under a series of loan notes that were also acquired from Britannia.
The FRC pointed to failures to obtain sufficient appropriate audit evidence, failure to exercise sufficient professional skepticism, and failure to inform Co-op Bank that the disclosure of the expected lives of “Leek Notes” in the financial statements wasn’t adequate.
The FRC separately considered the behavior of Co-op Bank’s CFO, who has previously admitted misconduct and was excluded from membership in the Institute of Chartered Accountants in England and Wales for six years.
KPMG said it has taken steps to improve its audit procedures and training. “We note the FRC’s announcement regarding our audit of the Coop Bank for the year ended 31 December 2009,” said a statement from a KPMG spokesman emailed to Accounting Today. “We regret that some of our audit work around specific elements of the Bank’s Fair Value Adjustments did not meet the appropriate standards. The work in question was conducted almost a decade ago and we have significantly enhanced our procedures and training around the areas in question since then.”
Last week, the FRC fined KPMG in a separate case involving its audits of Equity Syndicate Management Ltd., an auto insurance company affiliated with Lloyd's of London (see U.K. regulator fines KPMG $7.8M over audits of car insurer).