KPMG faces fresh embarrassment after its former client Halfords was forced to take a £12m hit following an accounting change.
It is another blow to the reputation of the Big Four auditor, which together with partners on its audit team has been hit with £24m of fines in the past 18 months by the industry watchdog.
Halfords revealed last week that it had taken an £11.7m hit to its retained earnings and net assets after a “misapplication” of costs in its previous accounts, which were audited by KPMG.
Some costs relating to Halfords’ distribution centres were accounted for in a manner that was not in line with the company’s policy, it said.
The changes did not affect the company’s profit and loss account or cash flow statement.
KPMG audited Halfords for a decade but was replaced by BDO earlier this year following a re-tendering of the role.
KPMG’s lead partner on the audit was Peter Meehan, who was also the auditor of government outsourcer Carillion before it went bust in January 2018.
The change to the accounts is understood to relate to a policy that was in place before he became the lead partner on the Halfords account.
Mr Meehan has been suspended by the firm after regulators at the Financial Reporting Council (FRC) opened an investigation into its audit work for Carillion.
A source close to Halfords sought to play down the issue, which was first reported by the Financial Times, saying it is normal for new auditors reach different judgments on grey areas within accounting policies.
The firm has come under pressure from the crisis on the high street as customers shun bricks-and-mortar stores to shop online instead, issuing a string of profit warnings in the past 12 months.
Shares in the seller of bikes and car wipers have fallen more than a third this year. Last Thursday it revealed a drop in profits to £27.5m for the six months to September, down 2.5pc on a year earlier. Sales at stores open for more than a year fell 2.9pc to £283m.
KPMG and Halfords declined to comment. Mr Meehan did not respond to a request for comment.
The auditor has been hit with a string of fines in the past 18 months, including for its work on the accounts of BNY Mellon, Co-op Bank and Ted Baker. Six of its senior staff have also been reprimanded and fined for their work on several substandard audits.
While the firm and its partners have together been fined a total of £24m, some of the penalties were reduced because the firm admitted its failings and co-operated with the FRC investigations.
These fines are dwarfed by KPMG’s UK revenues, which stood at £2.2bn in the year to September 2018, and average partner pay which was £601,000.
KPMG is also the subject of several continuing investigations. The FRC’s annual enforcement review in July listed outstanding investigations into its work for Carillion, Rolls Royce and drinks retailer Conviviality, which collapsed after a surprise £30m tax bill.
The surge in enforcement actions has led major audit firms to jack up the price of contracts due to increased risks associated with vetting the books of the UK’s biggest companies.
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