The investigation found KPMG and Mr. Smith, who conducted the audit, in breach of relevant requirements in two key areas: intercompany transactions and year-end intercompany balances, and the accuracy of the cost of inventory and year-end inventory balances. As a result, sanctions have been imposed on both KPMG and Mr. Smith.

Both KPMG and Mr. Smith cooperated with the FRC’s investigation and admitted the breaches, resulting in a 30% discount on the financial sanctions imposed.

KPMG has been fined £1.25m, which was reduced to £875,000 after taking into account admissions and early disposal. The firm has also received a severe reprimand, a declaration that the FY2016 audit report did not satisfy relevant requirements, and a mandate to analyse the underlying causes of the breaches and implement remedial measures to prevent recurrence. KPMG is also required to report to the FRC at each stage of the process.

Mr. Smith, who served as the audit engagement partner for the FY2016 audit, has been fined £50,000, which was reduced to £35,000 after taking into account admissions and early disposal. He also received a severe reprimand and a declaration that the FY2016 audit report did not satisfy relevant requirements.

KPMG will also pay the Executive Counsel’s costs of the investigation.