According to the FRC's website, its current investigations into inadequate audit are:

KPMG re Carillion
Deloitte re Mitie Group
PwC (PriceWaterhouseCoopers) re BT Group
KPMG re Rolls Royce
PwC re Redcentric
Unnamed re Sports Direct

Not in that list is the case of KPMG relating to Quindell plc.

Quindell plc was a complex group hoping to make it big in insurance but with a number of other business areas, starting and rapidly expanding divisions with apparent abandon. Today, people would applaud such businesses and say they are "agile" when what they should do is learn that agility without caution is a formula for disaster. Quindell Legal Services was one of the new breed of corporate legal services providers which are about as far removed from most people's understanding of a solicitor's firm as one can get. Ill-advised reform in the legal services sector has resulted in a number of extraordinarily catastrophic failures of companies which have expanded beyond their ability to bring in profitable business. One of the changes has been to allow law corporations to attract external capital and, even, to have non-lawyers sit on boards. One of the early entrants was Quindell. They threw money at developing five operating divisions: technology solutions, legal services, medico-legal reporting, claims outsourcing and telematics. At the heart of this was to build a "plaintiff's firm." But it went badly. Quindell was always short of money and made vague statements about its business, such as "the board remains comfortable with the group’s overall cash position. Further announcements will be made as appropriate."

The problem, it turns out, is that auditors accepted that comfort and did not question it. And then Quindell sold its legal services division to Slater and Gordon, an aggressively ambitious Melbourne law firm, for GBP673m. That was one of the big mistakes that caused the failure of Slater and Gordon . It is almost impossible to see how QLS could have a value in the same postcode as that figure, and it proved to be a millstone that sank fast taking Slaters with it. Worse, just a matter of months later, Quindell plc restated its profits (excuse us while we giggle at the word "profits") for 2014 from GBP+175m to GBP-137m - and the QLS businesses bought by Slater and Gordon had lost GBP133m in 2014. It was revealed that QLS had booked as profit expected earnings on some 54,000 hearing loss cases but the cases were not going as planned and even if they were successful, the profits would not come in for some time.

On 23 January of this year, it was announced "The Financial Reporting Council (FRC) has fined and reprimanded the audit firm Arrandco Audit Ltd. (formerly RSM Tenon Audit Ltd. “Tenon”) and the Audit Engagement Partner Jeremy Filley, following an investigation opened in August 2015. Both parties admitted Misconduct in relation to the audit of the financial statements of Quindell Portfolio plc and Quindell Ltd for the period ended 31 December 2011."

There was a settlement:
Tenon to receive a Reprimand and a fine of £1,000,000 (adjusted for mitigating factors and discounted for settlement to £700,000)
Mr Filley, who was also Statutory Audit Partner to receive a Reprimand and a fine of £80,000 (adjusted for mitigating factors and discounted for settlement to £56,000)
Tenon to pay a sum of £90,000 towards Executive Counsel’s costs

The admitted acts of Misconduct related to two elements of the audits, 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.

- Financial Reporting Council re RSM Tenon and Jeremy Filley

Yesterday came stage two of the results of investigations into auditors and the following announcement was made:

"The Financial Reporting Council (FRC) has fined and reprimanded the audit firm KPMG LLP and the Audit Engagement Partner William Smith following their admission of Misconduct in relation to the audit of the financial statements of Quindell plc for the period ended 31 December 2013.

The following terms of settlement have been approved by a legal member of the independent Tribunal Panel:

KPMG to receive a Reprimand and a fine of £4,500,000 (discounted for settlement to £3,150,000)
Mr Smith to receive a Reprimand and a fine of £120,000 (discounted for settlement to £84,000)
KPMG to pay a sum of £146,000 towards Executive Counsel’s costs. "

Then there was this: "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 fines are miniscule to such a large firm: at least they should be ordered to forfeit, in addition to their fine, their entire audit fee, one would suggest.

It's good to see action but only if there is any effective penalty: accountants have been getting away with shoddy audit work for decades. Either audit should be abandoned or it should be done properly.

Further reading:
https://www.frc.org.uk/news/au...
https://www.frc.org.uk/news/ja...(1)/sanctions-in-relation-to-the-audit-of-quindell-ltd

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