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Senior KPMG executive faces scrutiny over M&C Saatchi audits


One of KPMG’s most senior executives faces scrutiny from the UK audit regulator over a series of errors in the accounts of M&C Saatchi, the advertising company that misstated its headline profits by £14m.

The Financial Reporting Council has made initial inquiries to determine whether KPMG’s auditing, which was led by chief risk officer John Bennett from 2013 to 2017, met required standards, according to four people familiar with the situation.

The 2018 audit was led by another partner, Adrian Wilcox, after which KPMG resigned and the company switched to PwC.

The FRC inquiries are a formal step to determine whether to launch a full investigation.

M&C Saatchi is already under investigation by the Financial Conduct Authority following the disclosure of accounting errors that forced it to adjust its headline profits before tax by £14m and its statutory pre-tax profits by a total of £28.1m for 2018 and previous years.

Its shares were suspended from trading for 10 weeks last year as new auditor PwC struggled to establish its true financial position in the wake of the accounting scandal, which first came to light in the summer of 2019.

The FRC questions over M&C Saatchi add to the list of problems facing Jonathan Holt, KPMG’s head of audit, if his nomination as chief executive is confirmed by the firm’s partners in the coming days.

The Big Four group was thrown into turmoil in February by the resignation of Bill Michael following a staff backlash when he told them to “stop moaning” about working conditions during the pandemic and to stop “playing the victim card”.

KPMG is already the subject of three FRC investigations over its audits of Carillion, which collapsed into liquidation in January 2018; Conviviality, the owner of Bargain Booze, which went into administration in 2018; and Rolls-Royce.

KPMG is also facing a £250m negligence suit by the UK’s official receiver, the public official tasked with liquidating Carillion.

At M&C Saatchi, the fallout from the accounting errors led to a leadership overhaul and the departure of Jeremy Sinclair, David Kershaw and Bill Muirhead.

The men, known as the “three amigos”, were among the founders of the firm in 1995 when they split from Saatchi & Saatchi.

Moray MacLennan, the new chief executive, has set a target of increasing the company’s net revenues by 6 per cent a year despite a slowdown in the advertising market during the pandemic.

The FRC’s inquiries come as the regulator itself faces scrutiny over its perceived failure to police the accounting profession.

Its annual budget, published on Thursday, included plans to increase its number of staff by 16 per cent to 417 by March 2022. It is beefing up its operations amid plans to give it extra powers and to rename it as the Audit, Reporting and Governance Authority.

KPMG, John Bennett, Adrian Wilcox, the FRC and M&C Saatchi declined to comment.



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