The Financial Reporting Council (FRC) has launched an investigation into the most recent audit by KPMG of the financial statements of Conviviality.
The FRC is investigating the audit of the now defunct off-licence retailer that covered the 52 weeks ending 30 April 2017. The investigation will be conducted under the Audit Enforcement Procedure.
As the authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality. The FRC has also commenced an investigation under the Accountancy Scheme into the preparation and approval of Conviviality’s financial statements and other financial information by a member of the ICAEW.
KPMG had been auditing for Conviviality from 2015 up until in entered administration on 5 April 2018.
Problems began at Conviviality at the beginning of March when its profits came in 20% lower than expected due to an accounting error. The situation was then worsened on the 14 March when the company discovered an unnoticed £30m tax bill that had not been accounted for.
Commenting on the news of the investigation KPMG said that it believed it had “conducted our audit appropriately” and would co-operate fully with the investigation. A spokesperson said: “We note today’s announcement by the FRC of its investigation of the preparation, approval and audit of the financial statements of Conviviality for the year ended 30 April 2017. We believe we conducted our audit appropriately and will co-operate fully with the investigation.
“As reported by the company, it experienced margin weakness at the start of 2018 and also a significant payment to HMRC which had not been included within its short term cash flow projections, creating a short term funding requirement. Our audit of the company’s financial statements for the year ended 30 April 2018 had not yet commenced at the point which administrators were appointed.”