The Financial Reporting Council (FRC) has imposed sanctions against KPMG and its audit engagement partner Nicola Quayle in relation to the statutory audit of the financial statements of the drinks group Conviviality, which collapsed in 2018.
KPMG was fined £4.3 million, and should pay up £3.01m, after discounts for admissions and early disposal. The firm has also been served with a severe reprimand. Quayle was fined £110,000, but discounted to £80,850 for admissions and early disposal, along with severe reprimand.
The additional sanctions on KPMG include a declaration that the audit report did not satisfy the audit reporting requirements for the reasons set out in the Final Decision Notice for the FRC and a report to the FRC identifying the causes of the deficiencies in the 2017 Audit and the steps and remedial action which the firm has taken to prevent to reoccurrence of those deficiencies.
The FRC investigated the 2017 and 2018 audits of the financial statements of Conviviality, which owned retail brands like Bargain Booze, Select Convenience, and Wine Rack. After listing on the Alternative Investment Market of the London Stock Exchange, the company grew rapidly through a series of acquisitions, and reported significant increases in revenue, profit and net assets in the 2017 fiscal.
But, the business entered into administration in April 2018, after a failed attempt to raise further equity.
KPMG admitted failings in a number of areas in the 2017 audit, which was the second year in which KPMG had audited Conviviality.
These include a failure to revise, in light of information obtained during the 2017 Audit, their initial assessment of the risks of material misstatement to the financial statements, to design and perform audit procedures responsive to the risks of material misstatement due to fraud, and adequately to document their audit procedures in respect of the risk assessment and fraud risk assessment.
The firm also admitted failure to obtain sufficient appropriate audit evidence in relation to the franchise licence revenue, third-party contract for the supply of wine, the capitalisation of certain costs and the classification of certain items as exceptional, and several items of accrued supplier income.
The admitted failings in the 2018 Audit concern failures to document the decision to prepare a Financial Position and Prospects Procedures report to Conviviality (non-audit services) during the period of the FY2018 Audit, which breached the FRC’s Revised Ethical Standard 2016.
“The audit failings in this case were serious, spanned several significant areas of the financial statements and related to a number of fundamental auditing standards including the requirement to obtain sufficient appropriate audit evidence, apply sufficient professional scepticism, and prepare proper audit documentation. The sanctions reflect the seriousness of the failings,” Claudia Mortimore, deputy executive counsel to the FRC said.
