KPMG has been fined £3m for misconduct in relation to audits of the financial statements of Ted Baker and No Ordinary Designer Label for the financial years ending 26 January 2013 and 25 January 2014.
The Financial Reporting Council (FRC) said the misconduct arose from KPMG providing expert witness services to Ted Baker in a commercial court claim, which was in breach of ethical standards and led to the loss of KPMG’s independence for its audits.
The watchdog said there was a risk that the audit team would review the work of the expert when auditing Ted Baker’s treatment of the claim in its accounts and said ”this posed an unacceptable self-review threat”.
It also pointed to a threat of self-interest arising from the fact that the fees for the expert engagement significantly exceeded the audit fees in the relevant years.
The FRC did not allege that KPMG or Michael Francis Barradell, senior statutory auditor and audit engagement partner, lacked objectivity or integrity.
The £3m fine will be discounted to £2.1m for settlement.
KPMG must pay £112,000 for the executive counsel’s court costs and Barradell has been fined £80,000, reduced to £46,800 for settlement.
Claudia Mortimore, FRC interim executive counsel, 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.”