KPMG handed £1.75m fine over ‘flawed’ audit of TheWorks
The Financial Reporting Council (FRC) has revealed its sanctions against KPMG and former audit engagement partner Anthony Sykes, in relation to its 2020 audit of retailer TheWorks.co.uk.
The accountancy giant and Sykes have admitted breaches regarding; the requirements to plan and perform an audit with professional scepticism, to prepare sufficient audit documentation and to design and perform audit procedures in order to obtain sufficient appropriate audit evidence.
KPMG has received a fine of £1.75m, which has been reduced to £1,023,750, whilst former partner Sykes will pay £75k, which has been reduced to £43,875, as a reflection of both KPMG’s and Sykes co-operation, admissions, and the early disposal of the case.
Both parties will publish a statement in the form of a “severe reprimand”, alongside a declaration that the audit report did not satisfy requirements and an order for KPMG that action will taken to ensure this does not happen again.
KPMG’s approach to the audit of inventory existence was “flawed” says the FRC due to its failure to respond appropriately to variations in stock counts identified during controls testing and once the controls tested had failed, it did not adopt a substantive testing approach without adequate consideration or consultation.
The firm also failed to perform appropriate roll-forward and roll-back procedures.
However the FRC says the settlement notice does not assert that there was a material misstatement in the financial statements. It is not alleged that the breaches were intentional, dishonest, deliberate or reckless.
Claudia Mortimore, deputy executive counsel at the FRC, said: “The admitted failings, which critically undermined KPMG’s approach to the audit of inventory at a retail entity, were rudimentary and should not have occurred.
“The financial and non-financial sanctions, which include measures intended to enhance KPMG’s second line of defence function, are aimed at preventing a repetition of such failings in the future.”
