10/04/2018 - Expert witness service to Ted Baker results in dressing down

A fine of 2.1 million pounds ($2.7 million) was given to KPMG by the Financial Reporting Council following its admission of misconduct on Ted Baker Plc's financial statements in 2013 and 2014. Plus, a KPMG partner, Michael Francis Barradell, was reprimanded by the regulator and fined an additional 46,800 pounds.

KPMG providing expert witness services to Ted Baker in a London lawsuit, was seen as misconduct the FRC claimed. This was in breach of ethical standards and led to the loss of KPMG's independence in regard of the company's audits.

"Ethical standards are critical in supporting the confidence that third party users can reasonably have in financial statements in circumstances where, of necessity, they only have incomplete information to judge whether the auditor is in fact objective," said Claudia Mortimore, interim executive counsel at the FRC. "Where those standards are breached such that the auditor's independence is lost, user confidence is likely to be undermined."

The penalty is the latest hammer blow to an accountancy business already reeling from severe criticisms of its work. In June, the regulator issued a stern warning that KPMG's audit work is unacceptable, days after it was fined 3.1 million pounds for its 2013 audits of technology company Quindell Plc.

"These stories just don't go away," said Atul Shah, a professor of accounting at the University of Suffolk.

KPMG's U.K. press office said the firm's audit opinions on Ted Baker's financial statements have not been called into question. KPMG continually seeks to review and improve its processes and in 2017 decided not to undertake expert witness work for any company audited by KPMG UK, according to a statement.