The FRC’s penalties, announced June 29, each included discounted fines. KPMG received a reduced sanction of 877,500 pounds (US$1.1 million), while PwC received a reduced sanction of approximately 2 million pounds (US$2.5 million). The FRC said the fines were discounted for “admissions and early disposal” by each of the Big Four firms. FRC further cited “exceptional cooperation” by PwC, while citing KPMG’s “poor disciplinary record” as an aggravating factor.
FRC also issued non-financial sanctions in both cases, including a severe reprimand; a declaration that the 2017 audit report regarding KPMG, and the 2018 audit report regarding PwC, did not satisfy relevant requirements; and an order requiring each to take specified actions to prevent the re-occurrence of the violation.
Individual Sanctions
The FRC further sanctioned audit engagement partners at each firm. A reduced financial sanction of approximately £51,000 (U.S. $64,000) was assessed against Philip Storer of PwC, while a reduced financial sanction of approximately £45,500 (U.S. $57,000) was assessed against Nicola Quayle of KPMG.
Non-financial sanctions comprised a severe reprimand; and a declaration that the individual audit reports did not satisfy relevant requirements. “Quayle ceased performing Statutory Audits in 2020 and no longer holds a practicing certificate,” the FRC said. “She has provided an undertaking that she will not carry out statutory audits or sign statutory audit reports in the future.”
Case Details
ESL, a supply chain, transport and logistics business, was listed on the Alternative Investment Market. “KPMG performed the 2017 audit and resigned as auditor in 2018, because of a breakdown in their relationship with ESL’s management, following difficulties in obtaining sufficient appropriate audit evidence,” the FRC said. PwC was subsequently appointed for the 2018 audit.
In July 2019, ESL announced that a review had been conducted into its prior year financial statements. Following this review, in 2020, ESL disclosed significant prior year accounting adjustments to the 2017 and 2018 financial years. According to FRC, PwC and Storer, and KPMG and Quayle, breached Relevant Requirements in some of the areas which were subject to prior year adjustments.
Broadly, the admitted failings related to the audit work carried out on “property transactions entered into by ESL, and the disclosure in the financial statements regarding those transactions. These transactions had a significant effect on ESL’s financial performance, and without the profit generated from them, ESL would have been in a loss-making position,” the FRC said.
In both cases, the auditors further admitted failings related to dilapidations; accounting for a subsidiary company; and numerous serious failures regarding the audit work on ESL’s property transactions, including that “disclosures in the financial statements failed to adequately explain the impact of the property transactions on ESL’s financial performance.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.