The Financial Reporting Council (FRC) today publishes the report of the disciplinary hearing in relation to KPMG LLP (‘KPMG’) and Mr James Marsh, Chief Operating Officer of KPMG, regarding admitted breaches of the Ethical Standards for Auditors.
Following agreement to allegations by KPMG the Tribunal made four findings of Misconduct against KPMG relating to:
- its failure to require Mr Marsh to sell his shares in Cable and Wireless Worldwide PLC (‘CWW’), which was at that time an audit client of the firm, upon his appointment as Partner in 2011;
- the lack of sufficient or appropriate procedures to prevent or identify the failure on the part of Mr Marsh to sell the shares;
- the lack of an appropriate control environment that placed adherence to ethical principles and compliance with Ethical Standards above commercial considerations; and
- the subsequent appointment of Mr Marsh to the role of Chief Operating Officer when less than two years previously he had been in a position to exert significant influence over the financial statements of CWW.
The Tribunal made a finding of Misconduct against Mr Marsh in relation to his failure to dispose of his shares in CWW when he became a Partner in KPMG.
In relation to KPMG, the Tribunal imposed a Reprimand and, before discount for admissions, the Tribunal determined a Fine of £350,000 (subsequently adjusted by 35% to £227,500 to reflect KPMG’s admissions). In relation to Mr Marsh, the Tribunal imposed a Reprimand and before discounts for admissions, the Tribunal determined a Fine of £60,000 (subsequently adjusted by 35% to £39,000 to reflect Mr Marsh’s admissions). KPMG agreed to pay the majority of the FRC’s costs in relation to the case.
Report of the Disciplinary Tribunal: James Marsh (PDF)
Formal Complaint: James Marsh (PDF)
Notes to editors:
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.