Watchdog Scrutinizes KPMG’s Audit of Entain

In the world of auditing, they say, “Reputation is like glass—once shattered, it’s hard to piece back together.” For KPMG, one of the Big Four accounting firms, this saying has never rung truer. The Financial Reporting Council (FRC), the UK’s accounting watchdog, has launched an investigation into KPMG’s audit of Entain’s 2022 financial statements, further testing the firm’s efforts to rebuild trust after years of high-profile scandals. Entain, the parent company of gambling giants Ladbrokes and Coral, isn’t a stranger to controversy either, making this case a significant moment for both entities and the broader auditing industry.

KPMG in the Hot Seat

The FRC’s investigation is focused on the audit firm’s handling of the betting firm’s consolidated financial statements. While the watchdog has not disclosed specifics, the probe stems from broader concerns about the firm’s audit practices. The firm has audited the operator of Ladbrokes and Coral since 2018 and received £3.6 million for its work on the 2023 accounts. A KPMG UK spokesperson said, “We will cooperate fully with the FRC to conclude this matter as quickly as possible,” Meanwhile, the gambling giant isn’t saying much. Maybe they’re hoping the whole thing will just blow over.

The Gambling Giants Rough Ride Continues

The gambling giant had more bumps in the road than a country backroad. In 2023, they had to shell out a massive $755 million to HM Revenue & Customs (HMRC) as part of a deferred prosecution agreement (DPA). This settlement wrapped up a lengthy probe into alleged bribery at Entain’s former Turkish subsidiary, which they sold back in 2017.

This DPA is no small potatoes—it included a $711.65 million fine, a $12.30 million contribution to costs, and a $ 24.59 million charitable donation. The Crown Prosecution Service is still hunting down individuals connected to the case. And to make matters worse, Entain’s former CEO, Jette Nygaard-Andersen, bailed at the end of 2023. Her stint was marked by a 35% drop in the company’s market value. Now, Gavin Isaacs has taken the reins, and he’s got a lot of work to do to keep things from spinning out of control.

And It’s Not a Pretty One

This isn’t the accounting giant’s first rodeo with regulatory trouble. Since 2018, the firm has faced 17 disciplinary actions, racking up over £30 million in fines. Some of their most notorious scandals include:

• A record £21 million fine in 2023 for its "textbook failure" auditing Carillion, a construction giant that collapsed in 2018.
• A £13 million fine for its handling of Silentnight’s sale to private equity firm HIG in 2021.
• Fines for audit failings involving Eddie Stobart Logistics, Rolls-Royce, and BNY Mellon.

Despite efforts to improve, the accounting giant remains under fire. CEO Jon Holt has introduced reforms, including specialized teams for banking audits, but the firm’s reputation continues to take hits.

Strategic Moves and Revenue Snapshot

Amid the chaos, the audit giant has reported strong financial performance. In 2024, the firm in the USA posted revenue of $13.6 billion, with growth driven by consulting and advisory services. Similarly, KPMG UK reported £2.72 billion ($3.3 billion) in revenue, reflecting modest growth in its audit and tax divisions. But it’s not just business as usual for the accounting giant. They’ve also made headlines by applying for a law firm license in the US, signaling their intention to expand into legal services. This move aligns with a growing trend among the Big Four firms to diversify their service offerings. However, branching out comes with its own set of challenges, particularly when it comes to maintaining quality and compliance across multiple industries.

Civil Lawsuit and Market Impact

The operator of Ladbrokes and Coral troubles don’t end with regulatory scrutiny. In August 2024, Fox Williams filed a civil lawsuit on behalf of institutional investors, citing significant share price drops linked to the Turkish subsidiary scandal. Meanwhile, the audit firm’s involvement in the gambling giant audit further impacts the company’s stock. Entain’s shares recently fell 1.5% following the FRC’s announcement, making it one of the worst performers on the FTSE 100.

Pay Attention to These Key Takeaways

The unfolding investigation into KPMG offers critical lessons for professionals across industries:

• Reputation Matters: A single misstep can have far-reaching consequences, as seen with the audit firm’s repeated audit failures. Building trust takes years, but losing it happens in seconds.
• Ethics and Compliance Are Non-Negotiable: Entain’s settlement over bribery allegations underscores the importance of strong internal controls and adherence to legal standards.
• Evolving with the Industry: KPMG’s move to diversify into legal services is a reminder of the need to adapt, but it also highlights the risks of spreading too thin.
• Accountability Is Key: The rise in regulatory scrutiny shows that firms must prioritize accountability and transparency to stay ahead.

For professionals, these lessons aren’t just theoretical—they’re a call to action in today’s fast-paced and high-stakes business environment.

What This Means for the Industry

The FRC’s investigation into the accounting giant is more than just a reputational issue—it’s a wake-up call for the auditing industry. According to the FRC, nearly one-third of all Big Four audits failed to meet expected standards in 2022. The stakes are high. For the firm, this probe tests its ability to deliver promises of reform. For Entain, it adds another hurdle during an already rocky period. And for the industry, it underscores the urgent need for improved standards and accountability. As the story unfolds, one thing is clear: the demand for trustworthy auditing has never been greater. KPMG’s future as a credible auditor may hinge on how it navigates this latest crisis. For more insights into the world of accounting and finance, subscribe to our newsletter today.