KPMG woes deepen as watchdog FRC launches probe into Conviviality audit

Big Four accounting giant KPMG faced yet another blow to its reputation on Tuesday as the industry watchdog launched a inquiry into its auditing of collapsed Bargain Booze owner Conviviality.

The Financial Reporting Council’s latest move marks its seventh live investigation into the practice, which has borne the brunt of criticism over its monitoring of failed outsourcer Carillion earlier this year.

Conviviality had more than 700 stores under the Bargain Booze and Wine Rack brands. But it was forced into administration in April after a litany of catastrophic mistakes including a “spreadsheet error” which blew a £5 million hole in its profit forecast and a forgotten £30 million tax bill which fell due at the end of March.

KPMG — which was quick to point out that it had not yet begun its audit work on the final turbulent year of Conviviality’s corporate life — is nonetheless under investigation over its audit work in the year to April last year.

A spokesman said: “We believe we conducted our audit appropriately and will co-operate fully with the investigation. As reported by the company, it experienced margin weakness at the start of 2018 and also a significant payment to HMRC which had not been included within its short term cash flow projections, creating a short-term funding requirement.”

The FRC is also probing an unnamed individual at Conviviality over the “preparation and approval” of its financial statements. But the latest spotlight on KPMG comes days after the head of its UK arm Bill Michael said the profession “runs the risk of eroding trust”.

According to the FRC, it has almost twice as many probes into KPMG as any other of the Big Four rivals. Deloitte is subject to four live investigations and PwC two — having just taken a record fine over its work on BHS. EY has no outstanding investigations at all.

The slew of high-profile corporate failures has fuelled calls for the Big Four to be broken up to improve competition and the watchdog itself faces a government review over its previous toothless approach.

MPs also wrote to the FRC last week demanding an investigation into the accounting giant’s audit of HBOS in 2008, after claims which emerged in the leaked Project Lord Turnbull report over the HBOS Reading fraud scandal. KPMG “strongly refutes” the report.

The firm lost several clients in South Africa over its work for the controversial Guptas, who were accused of improperly influencing the award of contracts under the government of former president Jacob Zuma, a key ally of the family who quit this year. The head of KPMG’s South African arm resigned alongside seven other senior partners.