KPMG hit with Quindell fine as audit giants face break-up calls

The under-fire accountancy regulator on Monday handed out one of its biggest-ever fines to “Big Four” firm KPMG over its auditing of the scandal-struck former Quindell business.

The Financial Reporting Council has hit KPMG with a £4.5 million fine — reduced to £3.2 million for co-operation — for its audit of the insurance claims processor and legal services firm now known as Watchstone.

The conduct of KPMG fell “significantly short” of accounting standards, said the watchdog, which also fined audit partner William Smith £120,000, reduced to £84,000 for settlement.

The penalty is the third biggest on record levied by the FRC, which is facing increasing scrutiny over its future in the wake of the collapse of outsourcing giant Carillion in January.

MPs said they had “little faith” in its ability in a damning report while Business Secretary Greg Clark has launched a review into the watchdog to be led by Sir John Kingman.

KPMG is also being investigated by the FRC over its auditing of Carillion in the run-up to its collapse while the Big Four audit firms are facing calls to be broken up.

Politicians have also accused the FRC of dragging its heels in major investigations and its latest fine comes nearly three years after it first launched its probe into Quindell’s auditors.

The watchdog announced its investigation into accountants RSM Tenon and its successor as Quindell’s auditor, KPMG, in August 2015 when the company made a big restatement of previous years’ accounts, racking up huge losses. RSM, now known as Arrandco Audit, was also fined £700,000 in January.

The FRC said KPMG was punished for “failure to obtain reasonable assurance that the financial statements as a whole were free from material mis-statement, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional scepticism”.

The regulator’s investigation focused on KPMG’s handling of Quindell’s recognition of revenues for legal services as well as a series of software licence transactions, but it is still investigating individuals over the collapse.