KPMG fined over M&C Saatchi audit scandal

The accountancy regulator has fined KPMG and an audit partner over failures related to an audit of advertising agency M&C Saatchi.

The Financial Reporting Council (FRC) launched an investigation after M&C Saatchi found accounting errors in its company accounts for 2018, which ultimately led to a restatement of its profit for the year.

In its investigation the regulator looked at a number of elements of the audit, including revenue recognition, journal entries and the year-end consolidation process.

It found that revenues were inflated by around £1.2m as a result of failures concerning client credit payments. There were also failures to properly audit journal entries across a number of subsidiary companies, and a failure to document the auditors’ reasoning or complete inquiries with management in relation to rebates under one contract.

“KPMG’s audit did not meet the required quality standards in a number of respects amounting to serious audit failings and breaches of audit standards,” said Claudia Mortimore, deputy executive counsel of the FRC. “This included a lack of professional scepticism in certain high-risk areas of the audit and basic failings in journal testing.”

As a result of the failures KPMG was hit with a financial sanction of £2.25m, which was discounted for admissions and early disposal to £1.46m.

The FRC fined auditor Adrian Wilcox £75,000, discounted for admissions and early disposal to £48,750.

Both parties were also issued with non-financial sanctions comprising a published statement in the form of a severe reprimand and a declaration that the audit report in question did not satisfy the relevant requirements.

KPMG has paid the costs of the investigation.

Cath Burnet, head of audit at KPMG UK, said: “We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi plc fell short of required standards.

“We continue to invest significantly in audit quality, in our training, controls and technology, to drive further improvements and resilience in our audit practice.”