Sanctions against KPMG and Senior Statutory Auditor in relation to the audits of Ted Baker Plc

https://www.frc.org.uk/news/august-2018/sanctions-against-kpmg-and-senior-statutory-audito

Sanctions against KPMG and Senior Statutory Auditor in relation to the audits of Ted Baker Plc

20 August 2018
The Financial Reporting Council (FRC) has fined and reprimanded KPMG Audit Plc (‘KPMG’) and Michael Francis Barradell, Senior Statutory Auditor and Audit Engagement Partner, following their admission of Misconduct in relation to their audits of the financial statements of Ted Baker Plc and No Ordinary Designer Label Limited (together “Ted Baker”) for the financial years ended 26 January 2013 and 25 January 2014 (“the Audits”).

The following terms of settlement have been agreed by the FRC’s Executive Counsel and approved by a legal member of the independent Tribunal Panel: KPMG to receive a Severe Reprimand and a fine of £3,000,000 (discounted for settlement to £2,100,000. In addition KPMG will pay £112,000 in respect of the entirety of the Executive Counsel’s costs.
Mr Barradell to receive a Reprimand and a fine of £80,000 (reduced to £46,800 after adjustment for mitigating factors and a discount for settlement).

KPMG and Mr Barradell admitted to the Misconduct prior to service of a draft complaint and this is reflected in the settlement discounts applied.

The Misconduct arose from KPMG providing expert witness services to Ted Baker in a Commercial Court claim. This was in breach of the Ethical Standards and led to the loss of KPMG’s independence in respect of the Audits. There was a risk, which occurred, that the audit team would review the work of the expert when auditing Ted Baker’s treatment of the claim in its accounts and this posed an unacceptable self-review threat. In addition, 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 Mr Barradell also failed properly to consider. The Executive Counsel did not allege that KPMG or Mr Barradell in fact lacked objectivity or integrity.
(snip)