“Scandal-prone beancounter KPMG fined £40m after staff cheat on ethics exams and get illegal tip-offs about inspections”

Perhaps one of the TiggerTories first scrutiny and audit and governance efforts should be to check on its own auditors, Grant Thornton, who have also had their share of scandals!

https://eastdevonwatch.org/2018/10/14/eddcs-auditors-grant-thornton-in-the-bad-news-spotlight-again/

https://eastdevonwatch.org/2018/08/29/grant-thornton-eddcs-past-and-present-auditor-in-record-fine-as-auditing-scandal-spreads/

“Tainted KPMG has been fined £40million because staff cheated on ethics exams and were given illegal tip-offs about inspections by regulators.

The accountancy firm was hit with the penalty in the US after the Securities and Exchange Commission uncovered a host of bad behaviour. Accountants at the firm shared the answers to internal training exams, the SEC said, including papers meant to grill them on ethics and integrity.

Staff also hacked the websites used to carry out the tests to make the pass score lower, allowing them to get through even if less than 25 per cent of answers were correct.

And senior employees at KPMG obtained confidential lists of audits being inspected by the American Public Company Accounting Oversight Board.

This information allowed them to secretly alter reports so that the firm was less likely to be found to have carried out poor-quality work.

Jay Clayton, SEC chairman, said: ‘KPMG’s ethical failures are simply unacceptable.’

Steven Peikin, of the SEC’s enforcement division, said: ‘The breadth and seriousness of the misconduct at issue here is, frankly, astonishing.

‘This settlement reflects the need to severely punish this sort of wrongdoing while putting in place measures designed to prevent its recurrence.’ “

https://www.thisismoney.co.uk/money/markets/article-7151099/KPMG-fined-40m-staff-cheat-ethics-exams-illegal-tip-offs-inspections.html

“How the Big Four accountancy firms have become guardians of greed”

“Accountancy is by ­reputation a boring ­profession. We imagine a middle-aged man in a dusty office totting up figures.

This image is just how the Big Four accountancy firms like it, not least because it hides what they really are – the handmaidens of greed, graft and crony capitalism.

Deloitte, KPMG, Ernst & Young and PricewaterhouseCoopers are supposed to be the guardians of good business but have become the pin-striped promoters of the worst corporate practices.

They signed off the accounts of the banks which collapsed, failed to raise the alarm over BHS and Carillion and helped firms avoid tax on an industrial scale.

If you want to know why capitalism has such a bad reputation you need to look at the very people supposedly responsible for policing it.

It was not always like this. When the big four started, they were simply auditors.

But the deregulation after Thatcher’s “big bang” in the 1980s saw banks turn to ever more inventive ways of making money.

They could bundle up debts and sell them on, and bet against how much money that would make.

Instead of loaning money to firms, the banks started buying them. Instead of investing, they speculated. And the accountancy firms wanted a slice of this action.

In addition to auditing, they started offering consultancy – often to the firms whose books they were meant to be checking.

Nobody seemed to care about this blatant conflict of interest… until things went wrong.

Take the collapse of Carillion, which went bust with debts of £7billion.

Ten months earlier, KPMG had given its financial statements its seal of approval.

Since 2008, KPMG had received £20.2million in fees from Carillion.

In the same period, Deloitte netted £12million and Ernst & Young £18.3million.

The real winner, though, was PwC – which banked £21.1million from Carillion and is expected to make £50million overseeing its liquidation.

MP Frank Field accused the accountancy firms of “feasting on the carcass” of the firm.

Defenders of capitalism like to claim it encourages competition but this does not appear to be the case when just four firms have a near monopoly of the market.

In the UK, they audit 341 of the 350 biggest listed companies. And why go elsewhere when you can hire firms apparently willing to sign off accounts at the stroke of a pen and bag a lucrative consultancy contract at the same time?

A PwC auditor signed off BHS’s accounts days before it was sold by Sir Philip Green after spending just two hours looking at files. An internal note suggests the worker backdated his audit and failed to gather evidence on “whether BHS was a going concern”.

Then there is Lehman Brothers, Northern Rock, HBOS – all deemed going concerns by auditors shortly before their collapse.

In 2007, PwC’s audit of Northern Rock concluded “that in our opinion there were no matters relating to the going concern … that were required to be reported to shareholders”.

The bank’s ­collapse a few months later cost the taxpayer £2billion.

PwC later said it was not the “job of the auditor to look at the business model of a business”.

The Big Four also stand accused of advising big firms and high net worth individuals on how to stash cash away in tax havens.

The Paradise Papers showed Ernst & Young helped F1 champ Lewis Ham-ilton set up an offshore structure to avoid paying tax on his private jet.

Members of the Big Four have also faced accusations of misselling, turning a blind eye to bribery and collusion in corporate fraud.

Instead of questioning such behaviour, the Government rewards them with lucrative deals. Since 2015, the four firms have bagged Government contracts worth £1billion.

The Commons Business select committee has now launched an investigation into the Big Four and whether they should be broken up.

Chair Rachel Reeves said: “The audit market is broken. The Big Four’s overwhelming market domination has failed to deliver audits which are fit for purpose.”

Regulation is so lax we have no idea how much an auditor charges or how long they spend looking at the books.

Prem Sikka, emeritus professor of accounting at the University of Essex, says reforms are needed.

“The quality is low, competition is non-existent and the regulation is poor. It is almost impossible to sue negligent regulators in this country. To this date not a single accountancy firm has been investigated, prosecuted, fined or disciplined for selling tax avoidance schemes even though some of those schemes are unlawful.”

Will the accountancy firms finally be held to account?”

https://www.mirror.co.uk/news/politics/how-big-four-accountancy-firms-13581124

“Audit sector faces inquiry as minister points to deficiencies”

Interesting to note that a large number of people in East Devon have been pointing out deficiencies in internal and external audit foy YEARS!

https://eastdevonwatch.org/2014/09/17/please-dont-take-our-external-auditor-away-why-we-like-him-and-our-ceo-wants-the-same-auditor-at-both-councils-where-he-works/

https://eastdevonwatch.org/2015/01/15/a-question-for-the-swap-internal-auditor/

https://eastdevonwatch.org/2016/11/19/external-auditors-not-best-placed-to-review-local-plan-duh/

“The government has called for a comprehensive review of Britain’s auditing industry in what could herald huge changes to a sector dominated by the firms known as the big four.

Calls for reform have grown after the collapse of the construction giant Carillion and the former high street stalwart BHS revealed serious inadequacies in the auditing process.

The business secretary, Greg Clark, said it was “right to learn the lessons and apply them without delay” as he ordered the inquiry into competition within the industry where Deloitte, PwC, Ernst & Young and KPMG audit 98% of the UK’s largest listed companies.

“The collapse of Carillion exposed deficiencies in an audit process, where the market is dominated by just four large firms,” Clark said, in an interview with the Financial Times.

He added: “We know competition is one of the key drivers for maintaining and improving standards, so I have asked the Competition and Markets Authority to consider looking again at what can be done to improve the audit sector.”

Thousands of jobs were lost following Carillion’s collapse in January, with a subsequent parliamentary report finding that Deloitte – which received £10m to be the outsourcing company’s internal auditor – had been either “unable or unwilling” to identify failings in financial controls, or “too readily ignored them”.

Ernst & Young was paid £10.8m for “six months of failed turnaround advice”. Elsewhere, PwC was fined £10m by the Financial Reporting Council (FRC) for signing off on the accounts of BHS, before its sale for £1. The retailer collapsed in 2016, prompting the loss of 11,000 jobs.

Frank Field, the chairman of the work and pensions committee, said poor business practices were “waved through by a cosy club of auditors, conflicted at every turn”.

The FRC has previously called for an inquiry into whether the big four should be broken up, with their audit divisions spun off. This year, Deloitte warned that such a measure could affect the UK’s standing as a global financial centre.

Labour welcomed the announcement, but claimed the Conservatives were “playing catch-up”. …”

https://www.theguardian.com/business/2018/sep/29/uk-mulls-audit-sector-reform-after-minister-admits-deficiencies

EDDC’s former auditors in hot water again

“Under-fire accounting giant KPMG was on Monday slapped with a £3 million fine by the industry watchdog for a “breach of ethical standards” over its audit of fashion brand Ted Baker.

The Financial Reporting Council said the firm, which admitted it was in the wrong, should not have provided expert witness services to Ted Baker in a court case while it was also handling its books in 2013 and 2014.

“This was in breach of the ethical standards and led to the loss of KPMG’s independence in respect of the audits,” the FRC said. “In addition, there was a self-interest threat arising from the fact that the fees for the expert engagement significantly exceeded the audit fees.”

The firm’s fine was reduced to £2.1 million for settling the case early, although the auditor was also landed with a £112,000 bill for costs.

Its senior auditor, Michael Barradell was fined £80,000, cut to £46,800 after he settled.

KPMG said: “Where there are lessons to be learned, we will learn them.” It added that since last year it no longer offers any expert witness work for any company it audits and stressed that the actual scrutiny of Ted Baker’s books has not been called into question. …”

Source: Evening Standard Business

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)

“KPMG singled out in critical report on audit industry”

KPMG were, until recently, the auditors of East Devon District Council. Let’s hope that Grant Thornton (now back in the frame at EDDC) perform better – but who recalls their pitiful performance when they “investigated” the disgraced Councillor Graham Brown affair and found ….. nothing.

“KPMG, the accounting firm that signed off the books in the years leading up to Carillion’s collapse, has been singled out by the industry regulator in a report that says the overall quality of the audit profession is in decline.

The Financial Reporting Council, the watchdog for the UK’s accountants, said the profession had demonstrated a “failure to challenge management and show appropriate scepticism across their audits”.

There have been calls for the “big four” accountants – KPMG, PricewaterhouseCoopers, EY and Deloitte – to be broken up to spur competition and improve standards.

All four gave Carillion financial advice before the construction and outsourcing company failed. MPs accused the four of “feasting” on Carillion, whose finances proved far less healthy than directors had suggested.

The FRC reported a decline in the quality of the work of all four, with KPMG performing the worst. The watchdog is already investigating KPMG over its role in the collapse of Carillion and it said on Monday there had been an “unacceptable deterioration” in the quality of its work.

The FRC cited figures that showed half of KPMG’s audits of firms in the FTSE350 index had required “more than just limited” improvements, up from 35% in the previous year.

“The overall quality of the audits inspected in the year, and indeed the decline in quality over the past five years, is unacceptable and reflects badly on the action taken by the previous leadership, not just on the performance of frontline teams,” the regulator said.

“Our key concern is the extent of challenge of management and exercise of professional scepticism by audit teams, both being critical attributes of an effective audit, and more generally the inconsistent execution of audits within the firm.”

It added: “[KPMG] agrees that its efforts in recent years have not been sufficient; the FRC will hold KPMG’s new leadership to account for the success of their work to improve audit quality.” …

The FRC said it would now scrutinise KPMG more closely as a result of its findings. It will inspect 25% more KPMG audits than before and monitor the firm’s plans to improve the quality of its work.

In the FRC’s overall assessment of eight accountants, it found that 72% of audits of all firms, including those outside the FTSE350, required no more than limited improvement, down from 78% last year. While only half of KPMG’s FTSE350 audits were deemed satisfactory, rivals scored far higher, although all showed declines and fell short of the FRC’s target of 90%.

Deloitte scored 79%, down from 82% last year, EY fell from 92% to 82% and PwC was down from 90% to 84%. The four firms immediately below the big four – BDO, Mazars, GT and Moore Stephens – were told that the quality of their audits had generally improved.”

https://www.theguardian.com/business/2018/jun/18/kpmg-singled-out-in-critical-report-on-audit-industry

Auditers: can they understand mathematics let alone accounting?

KPMG audited EDDC accounts until recently.

“Accounting watchdog fined KPMG 3.2 million pounds on Monday for failings in its audit of Quindell Plc, after the legal services firm twice restated its accounts leading to heavy losses. …

The fine in Britain comes as the global network of accounting firms that make up KPMG is under pressure. It is facing an inquiry in Britain over its audit of failed outsourcer Carillion and scrutiny of its South African arm’s work for a company owned by the Gupta family.

The ‘big four’ accounting firms, including KPMG, are facing calls to break up into smaller parts from lawmakers in Britain who allege their dominance of the market means they do not sufficiently challenge clients’ claims about their accounts.

THe FRC is also investigating KPMG’s auditing of the collapsed construction and outsourcing firm Carillion.

Once close to being one of Britain’s blue chip financial firms, the AIM-listed Quindell saw its market value collapse in 2015 after regulators launched probes into its financial accounts.

Quindell, which has since been rebranded as Watchstone, is still being probed by Britain’s Serious Fraud Office and the FRC over its business and accounting practises.

KPMG’s fine was discounted from an original 4.5 million pounds and Smith’s from 120,000 pounds because they chose to settle the case, the FRC said.”

http://flip.it/K0.u3P
Source: Reuters