The Executive Counsel of the Financial Reporting Council (FRC) has imposed sanctions against KPMG Audit (KPMG) and Anthony Sykes, Audit Engagement Partner, in relation to the statutory audit of the consolidated financial statements of Rolls-Royce Group for the financial year ended 31 December 2010.
KPMG has been issued with a financial sanction of £4.5 million adjusted for admissions and early disposal to £3,375,000; and is required to commission a review by an appropriate external independent expert of the effectiveness of the firm’s policies, guidance and procedures for audit work in the area of an audited entity’s compliance with laws and regulations. KPMG has also been given a Severe Reprimand and a declaration that the Statutory Audit Report for the Audit did not satisfy the Relevant Requirements.
Antony Sykes has been fined £150,000 although this has been adjusted for admissions and early disposal to £112,500. He also has been issued with a Severe Reprimand and a declaration that the Statutory Audit Report for the Audit did not satisfy the Relevant Requirements.
KPMG will also pay Executive Counsel’s costs of the investigation.
The sanctions relate to failures to address matters identified in the audit of Rolls-Royce that indicated risk of non-compliance with laws and regulations in relation to two sets of payments made by the company to agents in India that gave rise to allegations of bribery and corruption which later formed two (out of twelve) counts in a Deferred Prosecution Agreement with the Serious Fraud Office in 2017, under which Rolls-Royce paid large fines.
The FPR stated that its Adverse Findings, which were accepted by the Respondents, amounted to serious failures to exercise professional scepticism, to obtain sufficient, appropriate audit evidence and document this on the audit file, and to achieve sufficient Engagement Quality Control.
"It is essential that auditors are alive to the risks of companies' non-compliance with laws and regulations, and conduct work in this area with care and sufficient professional scepticism. This is particularly so when the audited entity is in a sector where such risks are known to be prevalent,” said Claudia Mortimore, Deputy executive counsel to the FRC. “The package of financial and non-financial sanctions imposed in this case should help to improve the quality of future audits.”
A link to the Final Decision Notice can be found here.