Yahoo Finance KPMG fined £1.5m over accounting scandal at top Tory ad agency
The UK audit watchdog has fined KPMG £1.5m for “serious failings” after it didn’t spot an accounting scandal at ad agency M&C Saatchi.
The Financial Reporting Council (FRC) on Monday reprimanded the Big Four firm and supervising partner Adrian Wilcox for lacking “professional scepticism” when auditing the advertising agency’s 2018 accounts.
It follows a five-year investigation into serious accounting blunders at M&C Saatchi, which is known for its work with the Conservative Party.
The FRC launched its inquiry in 2019 after M&C Saatchi discovered £25.8m worth of accounting errors and misjudgments, including £14m of overstated profits.
The London-listed group was ultimately forced to restate its 2018 profits in its 2019 annual accounts. The crisis sent shares plunging and prompted the resignation of founder Maurice Saatchi and three directors.
The Financial Conduct Authority also launched an investigation into M&C Saatchi in 2020 but closed the case a year later without taking any enforcement action.
KPMG resigned as M&C’s accountant in 2019. The auditor has since admitted to numerous serious failings and breaches of audit standards, according to the FRC.
This included a lack of professional scepticism in certain high-risk areas of the audit and basic failings in record checking.
The FRC said: “Taken together, the breaches undermine confidence in statutory audit and the truth and fairness of financial statements.”
KPMG was ordered to pay £1.46m, a figure that was reduced from £2.25m for cooperation with the investigation. Mr Wilcox was also given a discounted fine of £48,750, down from £75,000. KPMG covered the costs of the investigation.
The FRC noted that the M&C Saatchi was “a challenging audit” and that KPMG demonstrated some robustness in delaying signing off the accounts until they obtained further evidence from the company’s management.
However, the watchdog concluded that KPMG’s “serious failings” affected potentially a significant number of people in the UK, including the public, investors and other market users.
Cath Burnet, head of audit at KPMG UK, said: “We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi PLC fell short of required standards.
“We continue to invest significantly in audit quality, in our training, controls and technology, to drive further improvements and resilience in our audit practice.”
M&C Saatchi was founded by brothers Maurice and Charles Saatchi in 1995 after they were ousted from their own advertising agency, Saatchi & Saatchi, in a boardroom coup.
The brothers were best known for their close ties to Margaret Thatcher’s Conservative government and for creating its famous “Labour Isn’t Working” campaign in the 1970s.
The Tory party switched from Saatchi & Saatchi to working with M&C Saatchi shortly after the agency was set up. Maurice Saatchi was made a Conservative peer in 1996 and was joint chairman of the party from 2003 to 2005.
Former party leader Lord Cameron dropped the ad agency in 2006 amid reports he wanted to foster a more caring image for the Tories.
