KPMG has been hit with a £6 million fine and been “severely reprimanded” by the accountancy watchdog over the way it audited an insurance company.
The City firm has also been told to undertake an internal review by the Financial Reporting Council (FRC) in relation to its audits of Equity Red Star, a firm based at the Lloyd’s of London insurance market.
Mark Taylor, a partner at KPMG, and former partner Anthony Hulse have each been fined £100,000 for their involvement in the audits, which took place in 2008 and 2009.
Equity Red Star director Douglas Morgan has also been banned from the Chartered Institute of Management Accountants for two years.
The FRC said it had begun investigating the audits in 2012, and first took action against the companies in 2016.
KPMG made “insufficient inquiries” about the process that Equity Red Star used to review insurance claims and to ensure its financial reserves, the FRC said.
It said: “Consequently, there was insufficient evidence to provide an unqualified audit opinion.”
An independent tribunal, which took place in December 2017, found that Mr Morgan’s review of insurance claims were “wholly improper”.
It said he failed to keep proper records and to properly disclose information to the company board and auditors.
A KPMG spokesman said: “We are disappointed that aspects of our 2008 and 2009 audits were found not to have met the standards set by our regulator.
“Since this work was conducted we have changed our insurance audit approach considerably, including how we work with actuaries when auditing insurance claims reserves.
“We will continue to work hard to put historical matters such as this to rest as quickly as possible.”
The fine comes amid increasing pressure on KPMG’s auditing work by regulators.
The firm is currently under investigation by the FRC over its audit of government contractor Carillion, which collapsed under £1 billion of debt last year.