Two of the world's largest accounting firms, KPMG and PwC, have been fined by the Financial Reporting Council (FRC) for their audits of Eddie Stobart Logistics.
KPMG was fined £877,500 for its 2017 audit of the lorry company, and also fined one of its former partners, Nicola Quayle, £45,000. PwC was fined £1.9 million for its 2018 audit of Eddie Stobart.
The FRC found that both audits had failed to meet certain requirements, including gathering enough relevant and appropriate evidence regarding the services provided by Eddie Stobart during certain transactions. This prevented them from attributing the revenue generated by those services and recognising it upfront in the financial year.
In a statement, KPMG said it "accepted the findings of the FRC and has taken steps to improve its audit processes".
PwC said that it "is committed to high quality audits and takes the findings of the FRC seriously." The firm said that it has "implemented a number of actions to address the issues identified" and that it is "confident that our audits meet the highest standards."
The sanctions against KPMG and PwC are the latest in a series of fines and reprimands that have been handed down to the Big Four firms in recent years. In May 2022, KPMG was fined £14.4 million for its audit of Rolls-Royce.
The FRC's actions are a sign that it is taking a tougher stance on audit quality. The regulator has said that it wants to see the Big Four firms "raise their game" and improve the quality of their audits.
The sanctions against KPMG and PwC will also have a knock-on effect on the companies that they audit. Investors and other stakeholders will be more likely to question the reliability of the financial statements of companies that are audited by these firms.
This could lead to higher costs for companies, as they may need to invest more in their internal controls and risk management systems. It could also make it more difficult for companies to raise capital from investors.
The sanctions against KPMG and PwC are a reminder that the audit function is vital to the financial markets. Investors and other stakeholders rely on auditors to provide an independent and objective assessment of a company's financial statements.
When audits fail to meet the required standards, it can have a significant impact on the markets and the businesses that are affected. The FRC's actions are a step in the right direction to ensure that the Big Four firms take their audit responsibilities seriously.
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