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Auditor KPMG fined for work on Quindell
Audit firm KPMG and a senior partner has been fined £4.6m and reprimanded by the UK accounting watchdog over its work on the financial statements of scandal-hit Quindell Plc for the period ended 31 December 2013.
The misconduct related to two audit areas, and included failure to obtain reasonable assurance that the financial statements as a whole were free from "material misstatement, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional scepticism".
The audit areas were over revenue recognition for legal services and a series of transactions relating to the sale and purchase of software licenses, related services and investments. Quindell, which has since changed its name to Watchstone and is still under criminal investigation by the Serious Fraud Office over its former business and accounting practices, made prior-year adjustments in both areas the following year, in their financial statements for the year ended 31 December 2014.
After the admission of misconduct by the company and audit engagement partner William Smith in a tribunal, the Financial Reporting Council meted out to KPMG a reprimand and a fine of £4.5m, discounted for settlement to £3.15m, with Smith reprimanded and fined £120,000, discounted for settlement to £84,000. KPMG will also pay £146,000 towards executive counsel's costs.
KPMG and Smith admitted that their conduct "fell significantly short" of the standards reasonably to be expected of a member of the Institute of Chartered Accountants in England and Wales and that they failed to act in accordance with principles of professional competence and due care.
In 2015, Quindell was investigated by the Financial Conduct Authority in relation to public statements made regarding its financial accounts during 2013 and 2014, before founder and chairman Rob Terry was eased off the board after his share dealings were called into question.
The year before the company was dismissed by New York short-sellers Gotham City Research as "a country club built on quicksand", which saw Quindell's market capitalisation more than halve from £2.5bn to less than £800m. Calling this a "co-ordinated shorting attack", Quindell took to the courts and won, with Gotham failing to provide either acknowledgment or a defence against the libel proceedings.
Quindell's legal business was sold to Australian law firm Slater & Gordon.