KPMG is on the accountancy naughty step again over Ted Baker audit

Firm faces hard choices as regulators finally get serious

KPMG: Accountant has been fined over Ted Baker audit (Reuters)

Hey KPMG partners! I think it might be time to discuss refurbishing the office naughty step. Do you have a buildings sub committee? Perhaps it could be delegated to that body.

You see, you do seem to be spending an awful lot of time there. Just today you were stepping on to it again for a “breach of ethical standards” over the audit you conducted for Ted Baker.

It’s a pity they don’t do drapes really. A few of them hanging over the stairwell might be just the thing to conceal your red faces as you stand there. And how about some nice carpet, plus one of those over priced Apple speakers to play soothing music.

I can see why it stings. It did rather seem like you used to have to commit something close to grand larceny for the Financial Reporting Council (FRC) to awaken from its slumber. Nowadays, thanks to the prodding of MPs and others, it’s jumping on just about everything. In other words, it seems to want to show us that there’s a point to its existence and that it is doing the job it was set up to do.

That’s getting quite pricey for you. A £2.1m fine, plus £116,000 for costs, plus £46,800 for the senior auditor to pay. Ouch!

Then there's the attendant bad publicy. Double ouch!

Perhaps some of the money from settling early (the fine would have been £3m otherwise) could buy those drapes, and the speaker, and the new carpet, and a subscription to Apple Music too.

Alternatively, you could spend the money on actually looking into the lessons you say you need to learn from this. And, I might add, from some of the other unlovely episodes you’ve been associated with recently. That’s right: I’m talking Carillon and Bargain Booze owner Conviviality here.

It shouldn’t be all that hard, really. All your auditors have to do is their jobs.

That means they have to be firm. They have to challenge the assumptions being made by the boards of the companies they work for on behalf of the shareholders who pay their fancy fees. It might even mean refusing to sign off accounts in certain situations.

I keep being told that most of them do those things. But enough of them don’t in high profile situations that it’s belatedly starting to cause you real problems.

That’s going to have to change, because the FRC’s neck is on the line, and that means your neck is on the line.

Turning your auditors into the heavy mob might lead to you losing the odd contract, and perhaps some lucrative consulting work too. But the thing is, it’ll ultimately work for your firm because you won’t so often be on the naughty step and you won’t get fined so often and you won’t be seen as the poster child for everything that’s wrong with the industry.

Instead the spotlight will be on those among your peers who think they might be able to pick up some of your business by backsliding.

That is if the regulator really means it this time. Thing is, if it doesn’t there’ll be a new, really nasty watchdog installed. It might already be coming.