In a recent announcement, the Financial Reporting Council (FRC), Britain’s accounting watchdog, revealed that it had fined two of the world’s leading auditors, PwC and KPMG, for serious lapses in their auditing of Eddie Stobart Logistics (ESL) company during the years 2017 and 2018. The fines were imposed due to identified failings that compromised the quality and accuracy of the audit process.
PwC’s fine amounted to £1.9 million ($2.4 million), which was reduced from an initial sum of £3.5 million owing to their exceptional cooperation and admissions during the investigation. The FRC outlined the failings admitted by PwC, including deficiencies in auditing property transactions, audit procedures, and property lease accruals related to ESL. Additionally, PwC audit partner Philip Storer received a fine of £51,187, which was reduced from £90,000 due to his cooperation and admissions.
Expressing remorse for their shortcomings, PwC issued a statement acknowledging that their work did not meet the required standard in this instance. The firm emphasized its commitment to delivering consistent high-quality audits and stated its dedication to addressing the underlying issues that led to the failures.
KPMG, which conducted the 2017 audit of ESL, resigned as the company’s auditor in 2018 due to strained relations with ESL’s management, resulting in difficulties in obtaining sufficient appropriate audit evidence. Consequently, PwC was appointed as the auditor for the 2018 fiscal year.
The FRC fined KPMG £877,500, reduced from an initial sum of £1.35 million due to admissions made during the investigation. The watchdog noted KPMG’s poor disciplinary record as an aggravating factor. Furthermore, KPMG was directed to take specific actions to prevent a recurrence of such contraventions.
Cath Burnet, the head of the audit at KPMG UK, expressed the accounting firm’s commitment to resolving past cases and learning from them. Burnet acknowledged that certain aspects of their work fell short of the required standards during this particular audit. KPMG affirmed its significant investment in audit quality, technology, and training as part of their efforts to drive further improvements.
In addition to KPMG’s fine, the FRC imposed a fine of £45,500 on Nicola Quayle, KPMG’s former audit partner, reduced from £70,000 due to admissions. Notable aggravating factors considered by the FRC were Quayle’s seniority at the time of signing the audit report and her past disciplinary record. Quayle made an undertaking to refrain from carrying out statutory audits or signing audit reports in the future.
The FRC’s actions against PwC and KPMG reflect the importance of upholding auditing standards and ensuring the accuracy and reliability of financial reporting. These fines and penalties serve as a reminder to auditing firms of the need to consistently adhere to robust practices and procedures, as well as to address any deficiencies promptly to maintain public trust and confidence in the audit profession.
