KPMG hit with £6m fine and ‘severely reprimanded’ over botched audit of insurance firm
Partner and ex-partner of big four accountancy firm also fined for failings in checking books of Lloyd’s of London car insurances syndicate
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Your support makes all the difference.Carillion’s former accountant KPMG has been fined £6m and “severely reprimanded” by a watchdog over another botched audit.
Watchdog the Financial Reporting Council (FRC) rebuked KPMG and fined partner Mark Taylor and former partner Anthony Hulse £100,000 each for failings in their work signing off the accounts of car insurer Equity Syndicate Management (ESM).
Douglas Morgan, a former director of ESM, has been excluded from membership of the Chartered Institute of Management Accountants for two years.
The fine is the latest in a string of question marks over the quality of KPMG’s audit work. The big four accountant has been fined £4.5m for its audit of insurance claims handler Quindell, and £3m for its work on Ted Baker.
KPMG is also under FRC investigations for its work with failed construction and outsourcing firm Carillion, as well as Bargain Booze owner Conviviality, which fell into administration last year.
The latest fines followed the FRC’s probe into audits dating back to 2007, 2008 and 2009 of Lloyd’s of London car insurer ESM, trading as Equity Red Star.
The watchdog started investigating the audits in 2012 and commenced action against the firm in 2016 when a formal complaint was filed.
KPMG made “insufficient enquiries” into how Equity reviewed its claims, and did not act on warning signs that the cash reserves were deteriorating, the FRC said.
“Consequently, there was insufficient evidence to provide an unqualified audit opinion.”
In 2010 Equity Red Star crashed to a A$358m (£200m) loss after failing to set aside enough cash to cover claims.
Equity is a UK subsidiary of Insurance Australia Group which insures a quarter of the motorcycles on Britain’s roads.
KPMG has agreed to carry out a further internal review and report to the FRC on its 2018 audits of insurance businesses.
A KPMG spokesperson said: “We are disappointed that aspects of our 2008 and 2009 audits were found not to have met the standards set by our regulator.
“Since this work was conducted, we have changed our insurance audit approach considerably, including how we work with actuaries when auditing insurance claims reserves.
“We will continue to work hard to put historical matters such as this to rest as quickly as possible.”
This month, MPs on the House of Commons Business, Energy and Industrial Strategy Committee called for the big four accountants that dominate the audit market to be broken up to improve competition in the sector and increase public trust in the quality of companies’ accounts.
The competition watchdog stopped short of recommending a full break-up but laid out a series of changes to overhaul the market, including an operational split of auditing and consultancy functions at large accountancy firms.
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