Britain’s accounting watchdog has fined KPMG £1.5 million (S$2.55 million) over its failings in the run-up to an accounting scandal at the advertising firm M&C Saatchi.

KPMG and its partner Adrian Wilcox failed to audit with sufficient professional skepticism, according to the Financial Reporting Council (FRC), which published a decision notice on Monday (Mar 4).

Wilcox was fined £48,750.

M&C Saatchi was placed under investigation by the FRC after an accounting crisis which was followed by a series of profit warnings and its shares being suspended when it came to light in 2019. 

The company was co-founded in 1995 by brothers Maurice and Charles Saatchi, the advertising gurus known historically for their political campaign work for Britain’s Conservative Party. They no longer sit on the board.

M&C Saatchi has admitted to accounting errors and misjudgments, including £14 million of direct misstatements of profits before tax.

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As a result, the FRC has been probing the company’s accounts, and its relationship with KPMG, the auditor until after its 2018 accounts. 

“KPMG’s audit did not meet the required quality standards in a number of respects amounting to serious audit failings and breaches of audit standards,” said Claudia Mortimore, deputy executive council at the FRC, in a statement. 

The breaches including a failure to properly audit journal entries across a series of subsidiary companies, and a failure to identify potentially high-risk journals, according to the FRC. The audit team did not consider whether journals needed to be checked because they increased apparent profitability. 

It also included a failure to document the auditors’ reasoning in relation to the retention of rebates under a contract which appeared to require these rebates to be passed back to a client.

KPMG’s fine was reduced from £2.25 million, due to admissions and early payment, while Wilcox’s was discounted from £75,000.

“We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi Plc fell short of required standards,” said Cath Burnet, head of audit at KPMG UK, in a statement. 

Contacted through KPMG, Wilcox declined to comment. BLOOMBERG