The Financial Reporting Council said it found “serious failures” related to the firm’s review of the engine maker’s 2010 financial review.
In recent years the FRC and the UK audit industry have faced scrutiny following a wave of corporate scandals, including the demise of defunct construction company Carillion plc and department-store chain BHS Ltd., which sought to reform and oversee the sector. Triggered various changes aimed at The FRC will be added as a new regulator called the Audit, Reporting and Governance Authority, which is set to launch next year.
The FRC said on Tuesday that KPMG failed to adequately address the risk of violating Rolls-Royce’s laws and regulations in making two sets of payments to third-party agents in India. The payment later became part of a UK criminal investigation into allegations of bribery and corruption at Rolls-Royce, with the company agreeing to pay £497 million to the UK government in 2017 to settle the investigation.
The FRC stated that the 2010 audit by KPMG found “serious failures” in its work to gather sufficient evidence and exercise professional suspicion. “It is essential that auditors live up to the risks of companies’ non-compliance with laws and regulations, and operate with care and sufficient professional skepticism in this area,” said Claudia Mortimore, FRC’s deputy executive counsel .
John Holt, KPMG’s UK business chief executive, said KPMG is investing in training, controls and technology to improve the quality of work provided by its audit practice. “I am sorry that elements of our work in the fiscal year 2010 audit of Rolls-Royce Group plc did not meet the required professional standards,” said Mr. Holt.
A KPMG spokesman said Mr Sykes, the partner overseeing the audit, continues to work at the firm and plans to retire in September.
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KPMG refused to make him available for interview. A Rolls-Royce spokesperson declined to comment.
The Rolls-Royce case is the latest of several settlements made by KPMG with the FRC this year. KPMG said earlier this month it would pay £14.4 million to settle allegations that it deliberately misled regulators during routine inspections involving Carillion and data-eraser company Blanco Technology Group plc, previously was known as Regeneresys plc.
KPMG was also fined £875,000 in March for an audit of bar chain Revolution Bars Group plc.
Write [email protected] . on Mark Maurer
Credit: www.wsj.com /