KPMG fined £1.25m for failings over Luceco audit

The Executive Counsel of the Financial Reporting Council (FRC) confirmed the fine, which has been reduced to £875,000 after the firm and individual admitted the breaches.

Stuart Peter James Smith, who performed the role of Audit Engagement Partner in respect of the Audit, was fined £50,000, discounted for admissions and early disposal to £35,000.

Cath Burnet, head of audit, KPMG UK, said: “We are committed to dealing with, and learning from, our historical cases and regret that aspects of our 2016 audit of Luceco fell short of required standards.

"We continue to invest significantly in training, controls and technology to improve quality and resilience in our audit practice.”

KPMG and Mr Smith admitted eight breaches of Relevant Requirements in relation to two areas of the Audit: intercompany transactions and year end intercompany balances; and accuracy of the cost of inventory and year end inventory balances.

The company's FY2016 financial statements included multiple material misstatements in relation to these two areas, which had to be restated in FY2017.

A report said: "The breaches included failures in the design and performance of audit procedures, failures to adequately review and critically assess the audit evidence obtained, failure to document the audit work and failures by the Respondents to apply professional scepticism.

"The breaches were made more serious by the fact that KPMG and Mr Smith were aware of prior year errors in respect of the accuracy of the cost of inventory and therefore this was one of the areas that needed particular focus in the FY2016 Audit.

"KPMG and Mr Smith co-operated with the FRC's investigation and admitted the breaches. The extent and timing of their admissions is reflected in the 30 per cent discount which has been applied to the financial sanctions."