KPMG and PwC sanctioned by FRC for Eddie Stobart audits

Big Four firms KPMG and PwC have been sanctioned by the FRC for their audits of Eddie Stobart Logistics (ESL) in 2017 and 2018.       

In 2019, when ESL’s financial statements were reviewed, it was found that KPMG had failed to meet certain requirements in some areas that had been adjusted in the previous year.     

KPMG were unable to gather enough relevant and appropriate evidence regarding the services provided by ESL during those transactions. This prevented them from attributing the revenue generated by those services and recognising it upfront in the financial year.  

For PwC, its audit contained several failings, including a lack of identification of revenue recognition as a significant risk of material misstatement. Additionally, the financial statement disclosures failed to sufficiently explain the impact of these transactions on ESL’s financial performance.  

PWC had its fine adjusted from £3.5m to £1.9m due to its “exceptional cooperation” in the FRC’s investigation. The sanction was further discounted for admissions and early disposal.   

KPMG’s sanction was also reduced from £1.35m to £877,500, and its poor disciplinary record was noted as an “aggravating factor” by the FRC. 

Nicola Quayle, a former partner at KPMG, was fined £45,000, and Philip Storer, an audit engagement partner at PWC, was also fined approximately £51,000. Both individuals were “severely reprimanded”. 

In 2020, Quayle stopped conducting statutory audits and does not possess a valid practising certificate anymore. Additionally, she has pledged not to perform statutory audits or sign any related reports going forward.   

KPMG admit “serious failings”  

KPMG conducted the 2017 audit of ESL but later resigned from its role as auditor in 2018 due to a rift in its relationship with ESL’s management. This was after it  faced challenges in obtaining enough appropriate audit evidence.  

Claudia Mortimore, Deputy Executive Counsel at the FRC, said: “The case highlights the importance of, firstly, the auditor’s work in ensuring that disclosures in financial statements enable users to understand the impact of particular transactions on the entity’s financial performance; and secondly, ensuring that advice received in technical consultations is effectively implemented.”  

The failings by KPMG and Quayle were described by Mortimore as “serious but not pervasive”.   

Reacting to the sanctions, Cath Burnett, head of audit at KPMG, said the firm is committed to learning from its past cases and regrets the firm’s standards fell short.  

“This development marks another step forward in dealing with these matters, and we continue to invest significantly in audit quality, in our technology and training, to drive further improvements.”   

2023 has already seen the FRC sanction KPMG for its audit of retailer The Works after the firm made “rudimentary failings”, leading to a fine of just over £1m.  

Shortly after, the FRC initiated investigations into KPMG’s audit of the consolidated financial statements of Carr’s Group plc for the period ended 28 August 2021. 

PWC audit had “pervasive failings”  

PwC was brought on board to perform the 2018 audit of ESL, an audit which included “numerous, serious and pervasive failings,” according to Mortimore.  

A PwC spokesperson said: “Our work was not of the required standard on this occasion and for this we apologise.  

“We are focused on ensuring the consistent delivery of high-quality audits and, in the years since this work took place, the significant and continuous investment we have made in strengthening audit quality has been borne out through improved inspections results.”