Probes into share sale and audits of client follow insider trading scandal in US
A month after a senior KPMG partner in the US was charged with insider trading using client information, the UK accounting regulator has launched two investigations into the audit firm related to a share sale and the firm’s audits of car dealer Pendragon.
‘The Financial Reporting Council (FRC) has launched an investigation under the accountancy scheme into the conduct of KPMG Audit and a member regarding breaches of the ethical standards for auditors in relation to the non-timely disposal of a shareholding in a client entity,’ the council says in a press release.
Another release issued at the same time announces an investigation ‘into whether KPMG Audit was independent when it conducted the audits of Pendragon’s financial statements for the years ended December 31, 2010 and December 31, 2011.’
The council doesn’t further describe the investigations or any allegations against KPMG. But the Financial Times, citing an unidentified source, reports that the probe into the audits of Pendragon relate to the period in which a senior partner with KPMG in Birmingham left the audit firm to join Pendragon.
‘We take our professional responsibilities very seriously, have stringent policies and procedures in place to ensure our independence is not compromised and regularly review those procedures to ensure they remain appropriate,’ KPMG said in a statement to the FT after the council’s announcements.
Responding to the investigation into the ‘non-timely share sale’, KPMG said a partner ‘mistakenly failed to dispose of the relevant shares on a timely basis’ and that the firm’s procedures ‘in this instance, did not deal appropriately with that failure. We fully accept that the holding of shares in a client by a partner is in clear contravention of UK ethical standards. On becoming aware of the matter, however, we took action in relation to the partner concerned and initiated a review of procedures to ensure lessons are learned and applied.’
Besides the two probes announced, KPMG also faces a possible investigation in the UK in relation to the audits of HBOS, which it performed before it was taken over by Lloyd’s Banking, the FRC said in a press release last month. The council added that it was awaiting reports from the parliamentary commission on banking standards, and financial regulators, on that issue.
Early last month in the US, the SEC charged a former partner at KPMG and his friend with insider trading, alleging he shared confidential information on five companies with a golfing buddy in exchange for at least $50,000 in cash and a $12,000 Rolex watch.
