Big four auditor KPMG and a former partner in the firm have been fined and severely reprimanded by the accounting industry’s watchdog for failure to maintain objectivity and integrity while advising on the sale of mattress company Silentnight to private equity firm HIG.
The 5 August sanctions from the Financial Reporting Council include a £50,000 fine against David Costley-Wood — its former partner and head of KPMG’s restructuring unit in Manchester. These follow an independent Disciplinary Tribunal’s findings of misconduct post a four-week hearing from November to December 2020.
The FRC did not publish the Tribunal’s report, but instead described the parts of it. It said the Tribunal noted the history of KPMG’s involvement with Silentnight in this case as deeply troubling, as “KPMG failed to act solely in its client’s interests, acted in fundamental respects contrary to those interests and in those of a party whose interests were diametrically opposed to those of Silentnight.”
The Tribunal concluded that the lack of objectivity in this matter went to the core of the relationship between Silentnight and KPMG.
Further, the Tribunal noted that Costley-Wood “acted dishonestly” and therefore he and KPMG acted with a lack of integrity including in their dealings with the Pension Protection Fund and the Pensions Regulator, despite Costley-Wood acknowledging that there was an obligation to act transparently in relation to a regulator.
KPMG has also been ordered to pay £2,450,000 towards the FRC’s costs of the investigation together with the costs of the Tribunal (amounting to a further £305,814).
The firm has also been ordered to conduct a “Root Cause Review” to establish why threats to compliance and objectivity were not appropriately identified and safeguarded during their work with Silentnight.
The firm has to also consider a sample of past cases, to check whether threats to compliance and objectivity were appropriately identified and safeguarded, and it has also been told to conduct a review of various policies, procedures and training programmes relating to various advisory services practices in the light of the results of the Root Cause Review.
In addition to the fine, Costley-Wood, who has departed from the firm, has been severely reprimanded, and excluded from membership of the ICAEW for 13 years. There is also a ban on him holding an insolvency licence for the same period.
The FRC’s Executive Counsel, Elizabeth Barrett, said: “The scale and range of the sanctions imposed by the Tribunal mark the gravity of the Misconduct in this matter. The decision serves as an important reminder of the need for all Members of the profession to act with Integrity and Objectivity and of the serious consequences when they fail to do so.”
A spokesperson for KPMG UK said the firm acknowledges the tribunal’s findings and regrets that the professional standards we expect of our partners and colleagues were not met in this case.
“Mr David Costley-Wood has retired from the firm and whilst we no longer provide insolvency services, our broader controls and processes have evolved significantly since this work was performed over a decade ago.
“As a firm, we are committed to the highest standards and continually invest in our people and procedures to ensure potential conflicts of interest are identified and managed effectively. We welcome the additional review process outlined by the FRC and remain focused on building trust and delivering work of the highest quality,” the spokesperson said.
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