Fashion
Rolls-Royce Holdings doesn’t expect to take a hit from the investigation into the company’s audits, according to finance chief Stephen Daintith. The Financial Reporting Council, the U.K. regulator for corporate governance and reporting, said Thursday it has commenced an investigation into the conduct of KPMG Audit PLC related to the auditing of financial statements for two company entities over a four year time period.
The FRC decision follows an announcement by the Serious Fraud Office in January of a deferred prosecution agreement between the SFO and Rolls-Royce. U.K. fraud investigators said at the time Rolls-Royce engaged in illegal business practices over a period spanning three decades and would pay more than $800 million in fines. The SFO has done a “thorough piece of work”, Mr. Daintith said.
In February, the company reported a record loss of £4.03 billion ($5.2 billion). KPMG said Thursday it was “confident in the quality of all the audit work” it performed for the aircraft engine maker.
“It is important that regulators acting in the public interest should review high profile issues. We will co-operate fully with the FRC’s investigation, which follows the SFO’s investigations into Rolls-Royce,” said the auditor in a statement. Jimmy Daboo, partner at KPMG, said “we have confidence in the audits we’ve done.”
The illegal payments would have been hard for an external auditor to spot, said Sandy Morris, an equity analyst at Jefferies International Ltd. in London. “Most of these payments were small and it is very unlikely KPMG would have selected these cash transactions to be tested during their audit,” Mr. Morris said.
On average, Rolls-Royce made payments between $1 million and $4 million, he said. As KPMG only tested a proportion of Rolls-Royce transactions during its audit, chances are high it would have missed these payments, especially as they were often obfuscated and conducted by middle managers, Mr. Morris said.
The Serious Fraud Office said the January agreement covers 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery. Wrongdoing took place in business dealings in Indonesia, Thailand, India, Russia, Nigeria, China and Malaysia, the U.K. government said.
