KPMG is set to be hit with its biggest-ever fine in the UK after a tribunal found that its auditors deliberately misled regulators during routine inspections of its work.

The tribunal heard on Thursday that KPMG and the Financial Reporting Council had agreed the firm should be fined £20mn for its misconduct, but that this should be reduced to £14.4mn to reflect mitigating factors and KPMG’s admissions of wrongdoing. KPMG has also agreed to pay £4.3mn in costs.

Five individual defendants — Peter Meehan, who led the audit of collapsed government contractor Carillion; senior managers Alistair Wright, Richard Kitchen and Adam Bennett; and junior auditor Pratik Paw — were all found guilty of misconduct.

Another former KPMG auditor Stuart Smith accepted a £150,000 fine and a three-year ban from the profession as part of a settlement with the FRC in January.

The tribunal’s findings on Thursday followed a five-week hearing in January and February focusing on the conduct of KPMG staff during routine FRC inspections of the firm’s audits of the 2014 accounts of outsourcer Regenersis and the 2016 accounts of Carillion.

It ruled that during the inspections KPMG auditors created documents, including meeting minutes, spreadsheets and assessments of goodwill, but passed them off as having been produced before the accounts were signed off.

Summarising the tribunal’s findings, Mark Ellison QC for the FRC said Meehan, Wright, Kitchen and Bennett had “acted deliberately and dishonestly in the creation of false documents and the making of false representations” to the FRC. Paw acted without integrity but not dishonestly, the tribunal found.

The FRC called for Meehan to be fined £400,000 and banned from the profession for 15 years. Meehan’s lawyers said he should be fined £250,000 and banned for 10 years.

The regulator said Wright, Kitchen and Bennett should each be fined £100,000 and banned for 12 years, with a 10 per cent discount for Wright because he had admitted to some of the allegations against him. Paw, who was not yet a qualified accountant at the time of his wrongdoing, should be fined £50,000 and banned for four years, the FRC said.

David Turner QC for Wright said his client was “chastened, humbled [and] contrite” but that the fine against him should not exceed £50,000.

Fionn Pilbrow QC for Kitchen said his client should be banned for no more than six years and that any fine should be take into account mitigating factors, including the “career-crippling consequences” of the tribunal’s findings against him.

Lawyers for Bennett and Paw are due to make arguments to the tribunal on Friday. The tribunal will decide on the final penalties after hearing arguments from lawyers on both sides.

The £14.4mn fine for KPMG would be the second-largest ever handed to a UK accounting firm, eclipsed only by the £15mn penalty imposed on Deloitte in 2020 for its auditing failures at former FTSE 100 software group Autonomy.

KPMG, which is liable for the actions of its staff, admitted at the start of the tribunal that the FRC was misled.

Jon Holt, UK chief executive of KPMG, said the misconduct was “unjustifiable and wrong”. It was right that the firm and its former auditors should face “serious regulatory sanctions”, he said.

“We have worked hard, and with complete transparency to our regulator, to assure ourselves that this matter does not represent the wider culture or practice of our firm,” he added.

The tribunal was not asked to assess whether KPMG’s audits of Carillion or Regenersis were substantively flawed, only whether its auditors had misled the FRC during routine regulatory inspections of its work.

The FRC is running separate investigations into possible failings in the Carillion audits. KPMG, which has been fined more than £34mn for misconduct in the UK in the past four years, has said it will defend a £1.3bn negligence claim against it by Carillion’s liquidators. The government has also launched legal action seeking to ban eight former directors of Carillion from UK boardrooms.

Carillion had liabilities of £7bn and only £29mn of cash when it collapsed more than four years ago after receiving clean audit opinions. The incident added urgency to long-running calls for reform of the UK audit sector and boardroom regulation.

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