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.”

KPMG’s German arm acquires Bonn-based consultancy BrainNet

German professional services network KPMG AG said it will take over consultancy specialist BrainNet Supply Management Group for an undisclosed sum.

The target company is based in Bonn, Germany and St. Gallen, Switzerland and focuses on procurement consulting and supply chain management (SCM). The buyer said that the transaction boosts KPMG member firms’ existing capability in designing and optimising global supply chains and that it expands its service offering.

Through the transaction, KPMG intends to form a global Center of Excellence to provide support for the procurement and supply chain management offering of its member firms, including the BrainNet business. BrainNets chief executive officer Christian Rast will head the Center.

The deal, which is pending regulatory approvals, is expected to be completed later during the summer.

BrainNet, with annual revenues of more than USD65m (EUR51m), has presence in in Bonn, Budapest, London, Mexico City, Mumbai, Munich, Pittsburgh, Rio de Janeiro, Saao Paulo, Shanghai, St. Gallen, Stockholm, Vienna and Wroclaw. The company’s client base stands at over 500. It providers solutions in the areas of research & development, operations, logistics, purchasing and strategic qualification.