UK's Financial Reporting Council (FRC) has fined auditor KPMG and some of its partners for the auditing of motor vehicles insurer Equity Syndicate Management (ESM) Limited. KPMG has been fined 6 million pounds, its partner Mark Taylor and former partner Anthony Hulse 100,000 pounds each, the FRC said in a statement.
Douglas Morgan, a former director of ESM, has been excluded from membership of Chartered Institute of Management Accountants (CIMA) for two years. The fines followed the FRC’s investigation on the auditing of Lloyd’s of London car and motorcycles insurer Equity Red Star for accounts dating back to 2007, 2008 and 2009.
A formal complaint had been filed at the end of the investigation in 2016, it said in a statement. Equity Syndicate Management Limited was the management agent and a corporate member of the Lloyd’s of London, trading as Equity Red Star. KPMG has agreed to undertake an additional internal review and report to the regulator on certain aspects of its 2018 audits of insurance undertakings.
In 2010 Equity Red Star, a UK subsidiary of Insurance Australia Group which insures one in four motorcycles on Britain’s roads, suffered a A$358 million loss after failing to set aside enough cash to cover claims. The watchdog said that insufficient enquiries were made regarding the claims review process and “warning signs of deterioration in the Syndicate’s claims reserves were not acted upon, and consequently there was insufficient evidence to provide an unqualified audit opinion.”
