The FRC revealed on Monday that the fine was imposed due to KPMG’s failure to meet audit requirements during the review of M&C Saatchi’s accounts for the year ending December 2018.

The disclosure of accounting errors compelled the agency to adjust its reported profits for 2018 and previous years.

In addition to the financial penalty, the FRC issued a final settlement decision notice against KPMG and Adrian Wilcox, the audit engagement partner, for their statutory audit of M&C Saatchi for the financial year ending December 2018. KPMG received a financial sanction of £1,462,500 (discounted from £2,250,000), along with non-financial sanctions including a severe reprimand and a declaration that the audit report did not meet the relevant requirements.

Mr Wilcox faced a financial sanction of £48,750 (discounted from £75,000) and similar non-financial sanctions.

KPMG’s audit improvement programmes post-audit, resulting from other FRC Enforcement investigations and engagement with the FRC’s Supervision Division, were considered in the decision, reducing the risk of identified failings recurring.

The FRC investigation, initiated following M&C Saatchi’s discovery of accounting errors in 2019, focused on various aspects of the audit, including revenue recognition, journal entries, and the year-end consolidation process. Both KPMG and Mr Wilcox admitted breaches in areas such as insufficient professional scepticism, failures in auditing journal entries, and a lack of documentation on auditors’ reasoning regarding the retention of rebates.

Claudia Mortimore, deputy executive counsel, said: “KPMG’s audit did not meet the required quality standards in a number of respects amounting to serious audit failings and breaches of audit standards. This included a lack of professional scepticism in certain high-risk areas of the audit and basic failings in journal testing.”