KPMG facing probe as Quindell restates accounts
KPMG's work as auditors of Quindell to be probed by FRC as troubled insurer's accounts reveal series of accounting errors
KPMG is facing an investigation by the accounting watchdog over its work auditing the accounts of troubled AIM-listed insurer Quindell.
The Financial Reporting Council inquiry was confirmed hours after Quindell revealed it had plunged to a £68m loss last year as it slashed the value of reported net assets by £600m as a result of a series of restatements relating to historic accounting errors.
The Serious Fraud office has launched a separate criminal investigation into the business and accounting practices at Quindell.
In notes to its 2014 accounts, the company said revisions to how it accounted for claims management sales hit 2013 revenues by £130m and profit after tax by £130m. There were also corrections to how it accounted for the acquisition of Quindell Limited by Mission Capital to treat it as a reverse acquisition.
The FRC said it had closed its review of the 2011 and 2012 accounts “in light of the positive actions taken by the directors” in correcting the errors and amending accounting policies. However, it noted that neither the directors nor auditors have been able to “determine that all material errors and omissions arising from historic transactions have been identified”.
Its investigation into KPMG comes after a review by PwC identified “aggressive practices” at the edge of acceptability, and inappropriate policies around how claims revenue and balances were accounted for.
KPMG, which last year faced stinging criticism from MPs over failings at Co-op Bank, said the FRC investigation is “understandable and appropriate…given the issues the company has faced”. It added that it had worked with management, the audit committee and the FRC to resolve various the problems.
“We issued an audit opinion on the 2013 statutory accounts which included a number of restatements,” KPMG said. “We have today issued a qualified audit opinion on the 2014 statutory accounts which include various further restatements, both to apply more conservative accounting policies in some areas and to correct prior year errors, largely in relation to certain historical acquisitions, revenue and share transactions and disclosures in respect of 2011 to 2013.”
Along with KMPG, the FRC is investigating Tenon Audit Limited – acquired by Baker Tilly when it bought RSM Tenon is a pre-pack administration – for the for the audit of Quindell’s accounts for the years ended 31 December 2011 and 31 December 2012.
The FRC has had its own issues relating to Quindell. Earlier this year, Jim Sutcliffe, resigned as chair of the FRC’s codes and standards committee days after taking up the role of Quindell’s deputy chairman and taking 10.9m share options – a situation deemed untenable as it appeared to conflict with the FRC’s corporate governance code.
