KPMG’s Fine Shows Why Audit Independence Really Matters

What happens when independence goes MIA in an audit? Just ask KPMG UK. The UK’s accounting regulator recently fined KPMG a fine of £690,625—a haircut from the original £1.25 million- for failing to maintain audit independence during its 2021 audit of Carr’s Group, a London-listed agriculture and engineering company. This wasn't some clerical oopsie. It was a textbook case of relying on another audit firm that clearly shouldn’t have been in the picture—and yet somehow was. Let’s dig into how a Big Four player ended up in hot water over what regulators called “basic and fundamental” failings, and why this saga is raising eyebrows in boardrooms from Birmingham to Boston.

Independence Isn’t Just a Buzzword

"Trust, but verify." That Cold War-era nugget applies perfectly to audit integrity, and in KPMG’s case, the "verify" part went off the rails. According to the Financial Reporting Council (FRC), KPMG relied on work performed by another unnamed firm to audit a Carr’s subsidiary. The catch? That same firm had also sold non-audit services—like tax and accounting advice—to the company and had kept the same audit engagement partner on the job for more than five years. That’s a double whammy in the world of audit ethics. The FRC’s 2019 Ethical Standard and International Standards on Auditing explicitly prohibit such overlaps to prevent conflicts of interest. Translation: If you’re checking the books, don’t be the one who cooked them, or hung around too long in the kitchen.

No Shady Business

Dishonesty wasn’t part of the equation, and the FRC was quick to note that the actual audit work wasn’t flawed. But in the world of audit, the perception of bias is almost as damaging as bias itself. Jamie Symington, Deputy Executive Counsel at the FRC, didn’t sugarcoat it: “The breaches were serious. KPMG and Plumb missed several opportunities in FY21 to establish the facts underpinning the breaches. The failings were basic.” Audit partner Nick Plumb was also fined £38,675, down from the original £70,000. And while neither party was accused of malice, the "should’ve known better" tone echoed throughout the FRC’s report like a disappointed schoolteacher’s lecture.

Here’s where things get a little messier. These independence issues weren’t unearthed until 2023, when Grant Thornton replaced KPMG as Carr’s auditors. That led to a nearly three-month suspension of Carr’s shares and a delayed release of its 2022 financial results. Did Carr’s say anything? Not really. The company didn’t respond to comment requests, but the whole episode makes it clear: audit oversight isn’t just a box-checking formality; it can have real financial consequences.

Clean Up and Shape Up

To their credit, KPMG didn’t play defense. They cooperated “exceptionally” with the investigation, self-reported the issue, and even handed over more evidence than required. That kind of corporate adulting earned them a 45% fine discount. Cath Burnet, head of audit at KPMG UK, acknowledged the flub: “We accept that we did not meet the required standards… We undertook remedial measures and are committed to driving continuous improvements.” One of those remedial steps? Reviewing a sample of past audits involving non-network firms to see if any other independent skeletons are hiding in the closet. Let’s hope the only thing they find is a few dusty spreadsheets.

The Takeaway for Professionals

For finance, audit, and compliance pros, this case is more than just an industry headline—it’s a cautionary tale with some bite:

• Know your independence rules cold: Whether you're engaging component auditors or bringing in external reviewers, ensure they’re squeaky clean on independence. “Sorta OK” won’t cut it.
• Monitor engagement tenure: Five years isn’t just a suggestion—it’s a line in the sand.
• Avoid non-audit entanglements: If your audit partner moonlights as the tax adviser, you’ve got a problem—and so does your firm.
• Document your due diligence: The FRC hammered KPMG not just for what they did, but for what they failed to document and double-check.
• Self-reporting pays off: KPMG’s fines were slashed by nearly half thanks to early cooperation and transparency. If your team makes a misstep, silence isn't golden.

When it comes to audit independence, professionals can’t afford to phone it in. A little vigilance now can save you a headline and a hefty fine later.

Independence Is Everything

In today’s audit environment, even the appearance of compromised independence is enough to land you in regulatory hot water, no matter how solid your audit work may be. KPMG’s fine isn’t about shady math or misstated numbers; it’s about playing too loose with the rules that guard objectivity. For finance pros and audit teams alike, the message is crystal clear: compliance isn’t just about ticking boxes—it’s about protecting trust. And in this business, trust is the one thing you can’t afford to lose.  So next time someone in your team says, “It’s probably fine,” maybe grab that Ethics Manual before hitting “Send.” One newsletter. All the updates you need. Subscribe to MYCPE ONE Insights.