FRC imposes sanctions on KPMG and audit partner over N Brown

Core Viewpoint - The Financial Reporting Council (FRC) has sanctioned KPMG and audit engagement partner Anthony Sykes for serious breaches in their audit of N Brown Group, specifically regarding the financial statements for the year ending 26 February 2022 [1][2]. Sanctions and Penalties - KPMG has been fined £710,937.50 ($955,550) and Sykes £51,187.50 ($68,799) after adjustments for cooperation and early admissions [2]. - Both KPMG and Sykes received a severe reprimand, and the auditor's report for FY22 was declared not to meet relevant requirements [2]. Audit Findings - The FRC's investigation identified several deficiencies in the audit work on impairment, including issues with the carrying value of the cash-generating unit, cash flow forecasts, impairment model methodology, discount rate, sensitivity analysis, and reconciliation to market capitalisation [3]. - An indicator of impairment was noted during FY22, as N Brown's market capitalisation was significantly lower than its net assets [4]. Industry Context - N Brown is a major UK online retailer of clothing and footwear, listed on the Alternative Investment Market of the London Stock Exchange at the time of the audit [3]. - The FRC emphasized the need for substantial diligence and careful judgment in auditing impairment, highlighting the significant risk associated with it [4].