KPMG fined £3.3m for Rolls-Royce audit failings

KPMG has been fined more than £3m by the accounting regulator over serious failures in its audit of Rolls-Royce.

The executive counsel of the Financial Reporting Council imposed a £4.5m fine on the big four accountant, reduced to £3.375m in recognition of KPMG co-operating with the probe.

Anthony Sykes, audit engagement partner, was fined £150,000, reduced to £112,500 also to reflect his co-operation.

The investigation, into three Rolls-Royce audits carried out by KPMG, was launched in May 2017.

Breaches were found in the audit of the financial year to 31 December 2010. In particular, the FRC said KPMG had failed to properly address indications that the aerospace and defence firm was not compliant with legal requirements regarding payments of agents in India.

The payments "gave rise to allegations of bribery and corruption", the FRC noted, and were later included in a criminal investigation by the Serious Fraud Office, which resulted in Rolls-Royce signing a deferred prosecution agreement with the SFO in 2017 as part of a £497m settlement.

KPMG has now been fined £21.7m so far this year over legacy audits carried out for Bargain Booze owner Conviviality and Revolution Bars, and for misleading regulators during an inspection of its audits of Carillion, the collapsed outsourcer.

Jon Holt, chief executive of KPMG in the UK, said: "When I came into my role as chief executive [in 2021], I said that we would move swiftly to resolve and learn from our outstanding regulatory cases. I am pleased we have now concluded this historic matter.

"We are also investing significantly in training, controls and technology to improve quality and resilience in our audit practice."

Alongside the fine, KPMG was severely reprimanded by the FRC, and ordered to commission an external review of its policies, guidance and procedures for audit work "in the area of an audited entity’s compliance with laws and regulations". Sykes was also severely reprimanded.