Another Big Four Firm Fined (Again)​

By Jake Rickman​

What do you need to know this week?

UK Regulators have given KPMG its largest fine to date for intentionally misleading the Financial Reporting Council (FRC) during its independent audits of previously troubled companies.

KPMG became the subject of an FRC inquiry when it gave “clean audits” for two of its clients, Carillion and Regeneris, when in fact there were multiple discrepancies and anomalies in the companies’ accounts. Shortly after KPMG delivered its reports on Carillion, the publicly traded construction company entered into liquidation, resulting in hundreds of people losing their jobs and the future of dozens of government construction projects jeopardised.

In addition to the £14.4m fine and additional costs of £3.95m, KPMG must appoint an independent reviewer that will evaluate the Big Four firm’s policies regarding the supply of information to its regulators, the FRC. Four former partners have been separately fined and banned from the auditing and accounting profession for as long as ten years.

Why is this important for your interviews?

Having previously covered another Big Four firm’s misconduct, KPMG’s record-breaking fine marks yet another instance where a Big Four firm has failed to abide by its regulatory obligations. Namely, that it must not mislead regulators by providing them with false documents related to the accounts of its clients.

Audit firms like KPMG and EY are in theory supposed to regulate the financial conduct of their clients by reviewing their accounts on a yearly basis. When an audit firm signs off on their clients’ accounts, it signals to investors that things are as the company’s management says they are. If the auditor sees something that does not look right, regulations require them to refuse to sign off on their accounts and in some cases, they must alert market authorities.

Yet the Carillion scandal is one of several auditing failures by one of the Big Four in recent years, which critics have long argued is evidence that the auditing and accounting industry needs to be reformed. The government has recently announced reforms to the profession, including the creation of a new public watchdog that will replace the FRC. However, some argue that the reforms do not go far enough.

You might wonder how this is relevant to your interviews? For one, you may find it helpful to think of audit firms as the financial equivalent of a law firm (at least in principle): that is, they advise clients on the accuracy of their books and act with an overriding objective to reassure the public’s confidence in the UK’s financial markets. Understanding why this is in fact not the case — as evidenced by the series of scandals that plagues the industry — demonstrates to interviewers that you appreciate the role of auditors in the market and understand the profession’s shortcomings.

Additionally, as an answer to “Why law?”, you might contrast the audit profession’s splotchy track record with solicitors, which as a profession broadly avoids the appearance of systemic wrongdoing.