UK market regulator fines KPMG over improper Ted Baker audit

London - The UK's Financial Reporting Council (FRC) has imposed a 3 million pounds on senior partner at KPMG over misconduct during the auditing of fashion retailer Ted Baker.

The British market regulator fined accountants KPMG three million pounds and reprimanded and fined senior partner Michael Francis Barradell for misconduct related to auditing of British fashion retailer Ted Baker's accounts, reported Reuters on Monday. The consultancy firm has been collaborating with the regulatory agency to resolve these matters.

KPMG's fine is related to the accounts for the company for the financial years ending in January 2013 and 2014.

The misconduct arose from KPMG providing expert witness services to Ted Baker in a commercial court claim, which the FRC said was in breach of ethical standards and led to the loss of KPMG’s independence in respect of the audits, reported the Irish edition of the ‘Independent’.

KPMG’s senior partner fined over Ted Baker’s audit misconduct

As reported by Reuters, 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. As a result, KPMG is to receive a “severe reprimand” and a fine of three million pounds, discounted for settlement to 2.1 million pounds (2.7 million US dollars). In addition, KPMG will pay 112,000 pounds (142,700 US dollars) in costs.

In a public statement, Claudia Mortimore, interim executive counsel at the FRC, said: “Ethical standards are critical in supporting the confidence that third party users can reasonably have in financial statements in circumstances where, of necessity, they only have incomplete information to judge whether the auditor is in fact 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.”

Asked by FashionUnited regarding the fine, a KPMG spokesperson 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.”

Regarding the future, the auditing firm stressed in the same statement that “We continually seek to review and improve our processes. In 2017 we took the decision not to undertake expert witness work for any company audited by KPMG UK, going beyond the requirements of the FRC’s Ethical Standard. The FRC’s Audit Quality Review team’s most recent public report on KPMG identified the firm’s monitoring and approval of non-audit services as an area of good practice.

Image:Ted Baker, SS18. Credits: Ted Baker Plc.