Accounting giant KPMG was today fined £3.15m after admitting to misconduct in handling the financial statements of legal services provider Quindell.
The Financial Reporting Council also fined audit engagement partner William Smith £84,000 in relation to accounts filed for the period ending 31 December 2013.
KPMG admitted failing to obtain reasonable assurance that the financial statements as a whole were 'free from material misstatement’, failing to obtain sufficient appropriate audit evidence and failing to exercise ‘sufficient professional scepticism’.
Quindell was listed on the London Stock Exchange and acquired a series of legal businesses during the the early part of this decade. But in its 2014 financial statements, it was forced to make prior-year adjustments in both revenue recognition for legal services and transactions relating to the sale and purchase of software licences, related services and investments.
Financial results announced to the London Stock Exchange in March 2014 showed profit before tax of £137.7m for the year to 31 December 2013, compared with £52.2m in 2012. This figure was significantly downgraded a year later, resulting in share trading being suspended.
The FRC said KPMG and Smith, members of the Institute of Chartered Accountants in England and Wales, admitted their conduct ‘fell significantly short’ of the standards reasonably expected of a member and a member firm. They failed to act in accordance with the ICAEW’s fundamental principle of professional competence and due care.
In a statement, a KPMG spokesperson said: 'Audit quality, and professional scepticism in particular, is of paramount importance to our firm. We have cooperated fully throughout the FRC’s investigation, and have already updated our audit processes and procedures to address the areas of concern.
'We regret that some aspects of our audit for the year ended 31 December 2013 did not meet the required standards. As we stated in our audit opinion for the following year, certain information given to KPMG contradicted representations previously made by former members of management.
'Nonetheless, we accept the FRC’s findings that in two specific areas of the audit, our challenge for the year ended 31 December 2013 should have gone further. Due to ongoing investigations by the FRC and SFO we are unable to comment further.'
Quindell’s former auditor for its 2011 accounts was also fined in January after admitting to falling short of expected standards.
In March 2015, the legal services division of Quindell was bought by Slater and Gordon, then run by a listed Australian parent company, for £637m. It was revealed last year the buying party spent more than £30m on due diligence before the deal was completed. The terms of the purchase are subject to ongoing legal action between the parent company and Watchstone plc, the successor entity to Quindell.