The big four firms faced sanctions following serious errors in their respective audits for the financial years ending 30 November 2017 and 2018.

KPMG, who audited ESL’s 2017 accounts, received a penalty of £1.35m, which was reduced to £877,500 due to early admissions of their failings. Nicola Quayle, a former KPMG partner and the statutory auditor for the 2017 audit, was also fined £70,000, subsequently reduced to £45,500 due to similar admissions. Ms Quayle, who has faced disciplinary action in the past, ceased performing statutory audits in 2020.

The FRC investigation noted significant shortcomings in the audit of property transactions and the respective disclosures in ESL’s financial statements. The profit from these transactions significantly impacted ESL’s financial performance, turning a potential loss into profit. The FRC concluded KPMG failed to gather sufficient audit evidence to allow revenue recognition and did not adequately explain the transactions’ impact on ESL’s financial performance in the disclosure statements.

For the 2018 audit, PwC and audit engagement partner Philip Storer were sanctioned. PwC faced a financial sanction of £3.5m, discounted to £1,990,625 due to exceptional cooperation and early admissions of failings. Mr Storer was fined £90,000, adjusted to £51,187.50 for similar reasons.

The FRC found numerous serious failings in PwC’s audit, including a lack of risk recognition, failure to consult on technical accounting aspects, and inadequate challenges to ESL’s management on the accounting policy for property transactions. These transactions significantly influenced ESL’s financial performance, and without them, ESL would have reported losses.

Both KPMG and PwC have expressed their regrets and commitment to learning from these instances. The FRC emphasised the importance of accurate financial disclosures and the necessity of formal consultations during the audit process.