FRC Takes Action Against KPMG for Compromised Independence During Audit

  • FRC fines KPMG £2.1m for breaching ethical standards during Ted Baker audit
  • Michael Francis Barradell, a partner at KPMG, also reprimanded and fined
  • KPMG provided expert witness services to Ted Baker in a commercial court claim
  • FRC states that this compromised independence during the audits
  • No allegations of lack of integrity or objectivity made against KPMG or Barradell

The Financial Reporting Council (FRC) has fined KPMG £2.1 million and severely reprimanded the firm, as well as its partner Michael Francis Barradell, after they admitted to misconduct in relation to audits of Ted Baker and No Ordinary Designer Label. Barradell also received a reprimand and a fine of £80,000 (reduced to £46,800 after adjustment for mitigating factors and discount for settlement). KPMG was asked by Ted Baker to complete an audit of their financial statements for the years ended 26 January 2013 and 25 January 2014. The FRC stated that misconduct arose from KPMG providing expert witness services to Ted Baker in a commercial court claim, which breached its ethical standards and compromised independence during the audits. Additionally, there was a ‘self-interest threat’ arising from the fact that the fees for the expert engagement significantly exceeded the audit fees in the relevant years, which KPMG and Barradell failed to properly consider. The executive counsel said it did not allege that KPMG or Barradell lacked objectivity or integrity. Claudia Mortimore, interim executive counsel at the FRC, stated: ‘Ethical Standards are critical in supporting the confidence that third-party users can reasonably have in financial statements in circumstances where they only have incomplete information to judge whether the auditor is objective. Where those standards are breached such that the auditor’s independence is lost, user confidence is likely to be undermined; the FRC makes clear by these sanctions the seriousness with which such breaches and their consequences are viewed.’ A KPMG spokesman said: ‘We are committed to upholding the highest standards of independence and regret that in this instance our processes fell short of the standards that we expect of our firm. We welcome the FRC making clear that they do not allege a lack of integrity or objectivity on KPMG’s part and we note that our audit opinions on Ted Baker’s financial statements have not been called into question.’ This is not the first time the Dutch company has been investigated by the FRC, with audits of Carillion and Rolls-Royce also under investigation in the past two years.

Factuality Level: 8
Factuality Justification: The article provides accurate information about the fine imposed on KPMG and Michael Francis Barradell by the Financial Reporting Council (FRC) for misconduct related to audits of Ted Baker and No Ordinary Designer Label. It explains the reasons behind the misconduct and includes quotes from relevant parties, such as Claudia Mortimore and a KPMG spokesman. The article also mentions previous investigations involving other companies like Carillion and Rolls-Royce.
Noise Level: 3
Noise Justification: The article provides relevant information about a fine issued to KPMG and Michael Francis Barradell for misconduct related to audits of Ted Baker and No Ordinary Designer Label. It also mentions the FRC’s stance on ethics in financial reporting and KPMG’s commitment to upholding high standards. However, it lacks analysis or exploration of long-term trends or possibilities, accountability for decision-makers, scientific rigor, intellectual honesty, staying on topic, evidence or data support, and actionable insights.
Financial Relevance: Yes
Financial Markets Impacted: KPMG, Ted Baker, No Ordinary Designer Label
Financial Rating Justification: The article discusses a fine and reprimand issued by the Financial Reporting Council to KPMG and its partner Michael Francis Barradell for misconduct in relation to audits of Ted Baker and No Ordinary Designer Label. This impacts the companies involved, as well as KPMG’s reputation in financial services.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: Minor
Extreme Rating Justification: There is no extreme event mentioned in the article. The situation described involves a financial misconduct and fine for KPMG and Michael Francis Barradell, but it does not meet the criteria of an extreme event.

Reported publicly: www.retailsector.co.uk