The FRC’s investigation into the audit for the financial year ending 28 August 2021 revealed significant failures to meet independence requirements. The issue arose from KPMG’s reliance on the work of another, unnamed audit firm that had audited one of Carr’s associate companies.

The regulator found that an audit engagement partner at the unnamed firm had exceeded the maximum five-year tenure for the role. Furthermore, this same firm had provided non-audit services to the associate entity, creating a conflict of interest.

According to the FRC, KPMG and Mr Plumb should not have signed off on the Carr’s Group audit report while relying on the work of a firm that was not in compliance with ethical standards. The breaches were identified as violations of the FRC’s 2019 Ethical Standard and the International Standards on Auditing.

While the FRC clarified that the quality of the substantive audit work carried out by both KPMG and the other firm was not in question, it described the failings as “of a basic and fundamental nature”. The regulator also noted that the breaches were not deemed to be intentional, dishonest, or reckless.

Both KPMG and Mr Plumb were credited for their “exceptional level of cooperation” with the investigation, which included self-reporting the breaches. This cooperation earned them a significant reduction in their financial penalties.

KPMG was handed a financial sanction of £1.25 million, which was discounted to £690,625. Mr Plumb received a penalty of £70,000, reduced to £38,675.

Responding to the sanction, Cath Burnet, head of audit at KPMG UK, said: “We accept that we did not meet the required standards in this instance. 

“We cooperated fully with the FRC’s investigation, undertook remedial measures to address the findings, and are committed to driving continuous improvements in our audit practice.”