The Financial Reporting Council (FRC) today publishes the report of the disciplinary hearing in relation to KPMG Audit Plc (‘KPMG Audit’) and Mr Greg Watts following admitted breaches of the Ethical Standards for Auditors.
Following agreement to allegations by KPMG Audit the Tribunal made three findings of Misconduct against KPMG Audit relating to:
- its failure to have sufficient or appropriate procedures in place to identify whether a former partner in KPMG might have been in the chain of command such that his appointment as non-executive director of Pendragon Plc (‘Pendragon’) in December 2010 would require KPMG Audit’s resignation;
- its failure to establish a control environment that placed adherence to ethical principles and compliance with Ethical Standards for Auditors above commercial considerations; and
- the failure to provide the Audit Committee of Pendragon with full written disclosure of relationships that bore on its objectivity and independence together with any safeguards that had been put in place.
The Tribunal made two findings of Misconduct against Mr Watts, the KPMG Audit engagement partner for Pendragon at the relevant time, in relation to:
- his failure to provide the Audit Committee of Pendragon with full written disclosure of relationships that bore on KPMG Audit’s objectivity and independence together with any safeguards that had been put in place; and
- a breach of the fundamental principle of confidentiality in that he failed to take all reasonable steps to preserve client confidentiality.
In relation to KPMG Audit, the Tribunal imposed a Reprimand and, before discount for admissions, the Tribunal determined a Fine of £250,000 (subsequently adjusted by 35% to £162,500 to reflect KPMG Audit’s admissions). Mr Watts received a Reprimand for the first finding and no sanction for the second finding. KPMG Audit agreed to pay the FRC’s costs in relation to the case.
Report of the Disciplinary Tribunal: Gregory Watts (PDF)
Formal Compaint: Gregory Watts (PDF)
Notes to editors:
The findings of Misconduct against Mr Watts do not affect the independence of the audit of Pendragon’s financial statements for the years ended 31 December 2010 and 2011 or any other period.
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
In relation to disciplinary matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process are:
- Decision to investigate
- Decision whether to bring disciplinary proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
- Tribunal hearing
- Determination and imposition of sanction and/or costs orders
The FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.
Investigations are conducted by Executive Counsel and the Professional Discipline team within the Conduct Division. If disciplinary proceedings are commenced, Executive Counsel delivers a complaint to the Conduct Committee. The Conduct Committee then instructs the Convener to appoint a Disciplinary Tribunal.
Disciplinary complaints filed following an investigation are heard by an independent Tribunal which will normally sit in public. If the Tribunal upholds a complaint, there is a wide range of sanctions which it can impose including an unlimited fine, exclusion from membership of a professional body covered by one of the Schemes and withdrawal of practising certificates or licences