The Financial Reporting Council (FRC) is to investigate KPMG over its auditing of the Rolls-Royce Group, after the manufacturer agreed to pay some £500m to the Serious Fraud Office (SFO) earlier this year as part of a deferred prosecution agreement (DPA) relating to bribery and corruption claims, the highest ever enforcement action against company in the UK for criminal conduct
The regulator has announced it will be looking at KPMG’s audit of the financial statements of Rolls-Royce Group for the year ended 31 December 2010 and of Rolls-Royce Holdings for the years ended 31 December 2011 to 31 December 2013.
The FRC said the decision to investigate follows the SFO announcement on 17 January 2017 of a DPA between the SFO and Rolls-Royce which relates to offences including conspiracy to corrupt and a failure to prevent bribery.
The DPA was the result of a four-year SFO investigation, and was described by the agency as enabling Rolls-Royce to account to a UK court for criminal conduct spanning three decades in seven jurisdictions and involving three business sectors.
It involves payments of £497.3m (comprising disgorgement of profits of £258m and a financial penalty of £239m) plus interest. Rolls-Royce is also reimbursing the SFO’s costs in full, which are estimated at around £13m.
The SFO indictment, which has been suspended for the term of the DPA, covered 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery. It involves Rolls-Royce’s civil aerospace and defence aerospace businesses and its former energy business and relates to the sale of aero engines, energy systems and related services. The conduct covered by the UK DPA took place across Indonesia, Thailand, India, Russia, Nigeria, China.
In total Rolls-Royce paid around £671m relating to the charges, as the company also reached a separate agreement with the US Department of Justice as well as a leniency agreement with Brazil’s Ministério Público Federal.
The SFO has said its investigation into the conduct of individuals in relation to the allegations continues.
In a statement KPMG said: ‘It is important that regulators acting in the public interest should review high profile issues. We will co-operate fully with the FRC’s investigation, which follows the SFO’s investigations into Rolls-Royce. We are confident in the quality of all the audit work we have completed for Rolls-Royce, including the 2010-2013 period the FRC is considering.’
KPMG has held the Rolls-Royce audit since 1990 but in December 2016 the company appointed PwC as auditor for the financial year commencing 1 January 2018, following a formal tender process. KPMG's annual audit was worth £5.9m in 2015 with a further £1.7m allocated to non-audit and audit-related fees, representing 29% of the total fees, down from 39% in 2014.
