EDDC’s recent external auditor facing fourth inquiry; regulator “feeble and timid”

“The accounting watchdog has launched an investigation into KPMG’s audit of Conviviality, the collapsed drinks and off-licence supplier.

It is the latest regulatory scrutiny into the Big Four firm, which is also under investigation over its audits of Carillion, Rolls-Royce and BNY Mellon.

The Financial Reporting Council has accused KPMG of an “unacceptable deterioration” in the quality of its audits and put its audits under special supervision. Last month it fined the firm £3.2 million for misconduct in its audits for Quindell, the insurance technology company. Pressure is increasing on KPMG and its competitors PWC, Deloitte and EY. Carillion and BHS shone a spotlight on the firms’ roles as both auditors and consultants to companies.

Conviviality, owner of the Bargain Booze and Wine Rack chains, collapsed into administration in April. It had been valued at more than £500 million in March but fell from grace after admitting that it had made an error in its forecasting and had found a £30 million tax bill due by the end of the month. It had 4,000 employees and 760 stores. Almost 2,000 jobs were saved when C&C acquired the wholesale business from the administrator. Bestway bought the retail business. The FRC is looking at financial statements for Conviviality in the year to the end of April 2017.

A spokesman for KPMG said: “We believe we conducted our audit appropriately. As reported by the company, it experienced margin weakness at the start of 2018 and also a significant payment to HMRC which had not been included within its short-term cash-flow projections, creating a short-term funding requirement.”

The FRC said that it would also investigate a member of the Institute of Chartered Accountants in England and Wales over the preparation and approval of Conviviality’s financial statements but did not name the individual.

This investigation comes as the FRC, the ICAEW, and the industry-backed Audit Quality Forum prepare to launch a government-backed review that will consider the effectiveness of the existing model for auditing. They are looking for an independent business leader to lead the review.

Bill Michael, who took over as head of KPMG UK in September, supports a review. “The profession needs to be re-evaluated, otherwise we run the risk of eroding trust,” he told The Times . “We can’t have a profession that isn’t trusted. It has consequences for society and the capital markets. You only need one bad apple to lose trust in the system.”

KPMG UK employs 15,000 partners and staff, 3,600 of whom work in its audit practice. Its tax consulting, deal advisory, management and risk consulting practices have grown in recent years and now employ about 7,500 staff.

The FRC is the subject of a parliament-led review which is expected to overhaul how the FRC works and shake up the accountancy profession. MPs looking at Carillion’s collapse accused regulators of being “feeble and timid”.”

Source: Times (pay wall)