The Financial Reporting Council (FRC) has fined and reprimanded KPMG and its Audit Engagement Partner William Smith following their admission of misconduct in relation to the audit of the financial statements of Quindell plc for the period ended 31 December 2013.
The terms of settlement have been approved by a legal member of the independent Tribunal Panel:
- KPMG to receive a Reprimand and a fine of £4,500,000 (discounted for settlement to £3,150,000)
- Mr Smith to receive a Reprimand and a fine of £120,000 (discounted for settlement to £84,000)
- KPMG to pay a sum of £146,000 towards Executive Counsel’s costs.
KPMG and Mr Smith, members of the Institute of Chartered Accountants in England and Wales (ICAEW), admitted that their conduct fell significantly short of the standards reasonably to be expected of a member and a member firm and that they failed to act in accordance with the ICAEW’s Fundamental Principle of Professional Competence and Due Care.
The Misconduct related to two audit areas, and included failure to obtain reasonable assurance that the financial statements as a whole were free from material misstatement, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional scepticism.
The audit areas were:
- Revenue recognition for legal services; and
- A series of transactions relating to the sale and purchase of software licenses, related services and investments.
Quindell made prior-year adjustments in both areas the following year, in their financial statements for the year ended 31 December 2014.
Quindell, now renamed Watchstone, was rocked by a series of scandals in 2015 and also investigated by the Serious Fraud Office.
Its shares surged between 2012 and 2014, valuing it at around £2.7 billion, but then plunged amid shortselling and after a US hedge fund questioned its business model.
The shares were later suspended after the Financial Conduct Authority launched a probe into its accounts and founder Rob Terry.