The UK’s Financial Reporting Council is investigating accounting firm KPMG’s audit of Entain, dealing a new setback to both companies.
The UK’s Financial Reporting Council (FRC) is investigating Big Four accounting firm KPMG’s audit of Entain, dealing a new setback to both companies.
The probe focuses on KPMG’s auditing of Entain’s 2022 accounts, as announced by the FRC on Monday (20 January).
Entain, the owner of Ladbrokes and Coral, has faced significant scrutiny in recent years, culminating in a £615m fine in 2023. The fine was part of a deferred prosecution agreement following a lengthy investigation into alleged bribery at the company’s former Turkish unit between 2011 and 2017.
While the corporate investigation conducted by HM Revenue & Customs (HMRC) concluded with this settlement, individual suspects were invited to enter plea discussions with the Crown Prosecution Service.
The FRC has not disclosed the specific areas of KPMG’s work under investigation. However, the accounting regulator retains the authority to impose financial penalties on both the firm and the lead audit partner involved, as well as non-monetary sanctions.
Any financial penalties imposed in this case would be directed to HM Treasury.
KPMG has been Entain’s auditor since 2018, earning £3.6m for its work on the gambling group’s 2023 accounts, according to Reuters, citing Entain data.
The firm issued a statement affirming its cooperation with the FRC to resolve the matter, saying it will “cooperate fully with the FRC to conclude this matter as quickly as possible.”
A troubled track record
The latest investigation adds to a series of challenges for KPMG, which has been working to restore its reputation following multiple high-profile failures in its audit practice.
These include its role in the 2018 collapse of Carillion, an outsourcing company that played a significant role in delivering public services in the UK.
An investigation into the Carillion collapse revealed multiple deficiencies in KPMG’s audit work, and a subsequent tribunal found that some auditors had misled regulators during inspections.
Since 2018, KPMG has faced disciplinary action in 17 separate cases in the UK, with fines levied for auditing failures involving a number of its high-end clients, including Rolls-Royce and BNY Mellon. The firm has paid more in fines than any of its Big Four rivals during this period.
To address these issues, KPMG’s UK chief executive, Jon Holt, has implemented measures to improve audit quality. These include the establishment of a specialised team to oversee banking audits, an area that has drawn significant criticism from the FRC in the past.
Job cuts amid financial growth
KPMG has also been navigating workforce reductions as it grapples with shifting market demands. Despite reporting a 6% growth in audit revenue for the fiscal year ending 30 September 2023, the firm announced layoffs in its US audit business due to lower staff attrition rates late last year.
Approximately 330 employees, or about 4% of its US audit workforce, were said to be affected.
This follows earlier workforce reductions in KPMG’s consultancy and deals divisions. In the UK, the firm cut 125 positions in its consultancy business — approximately 2.3% of its workforce — citing reduced demand. In the US, KPMG laid off 5% and 2% of its staff across various divisions in 2023.
These job cuts reflect a broader trend within the firm. After increasing its headcount during the Covid-19 pandemic, KPMG has been scaling back to align with current economic conditions and client demand.
KPMG’s struggles come as the accounting industry faces increasing regulatory scrutiny. The FRC, which has intensified its oversight in recent years, continues to focus on audit quality and professional accountability within the Big Four firms, Deloitte, Ernst & Young, PricewaterhouseCoopers (PwC), and KPMG.