The financial sanction of £4.5 million has been adjusted for admissions and early disposal to £3,375,000.

The Big Four firm has also been ordered to commission a review by an appropriate external independent expert of the effectiveness of the firm’s policies, guidance and procedures for audit work in the area of an audited entity’s compliance with laws and regulations.

Mr Sykes has been hit with a £150,000 fine, which was also dropped to £112,500 due to admissions and early disposal. He has been issued a severe reprimand.

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

The Adverse Findings against each KPMG and Mr Sykes relate to failures to address matters identified in the audit which indicated risk of non-compliance by the company with laws and regulations.

The matters concerned two sets of payments made by KPMG to agents in India. These payments gave rise to allegations of bribery and corruption which later formed two (out of twelve) counts in a Deferred Prosecution Agreement with the Serious Fraud Office in 2017, under which Rolls-Royce plc paid large fines.

Allegations of bribery and malpractice through the use of intermediaries and ‘advisers’ in the defence field were prominent at the time of the audit, including that in March 2010 (Defence Company A) paid large fines to settle US and UK criminal investigations resulting from the use of intermediaries. KPMG were well aware of these matters having also been auditors of (Defence Company A).

The adverse findings, which were accepted by the respondents, amounted to serious failures to exercise professional scepticism, to obtain sufficient, appropriate audit evidence and document this on the audit file, and to achieve sufficient Engagement Quality Control.

Executive Counsel does not assert that the breaches resulted in the financial statements being materially misstated. Furthermore, the breaches were limited to a discrete (albeit important) area of the audit for one financial year.

Claudia Mortimore, deputy executive counsel to the FRC, said: “It is essential that auditors are alive to the risks of companies’ non-compliance with laws and regulations, and conduct work in this area with care and sufficient professional scepticism. This is particularly so when the audited entity is in a sector where such risks are known to be prevalent.

“The package of financial and non-financial sanctions imposed in this case should help to improve the quality of future audits.”