By Huw Jones
LONDON (Reuters) - KPMG has been fined 875,000 pounds ($1.09 million) for its audit of lighting manufacturer Luceco (LON:LUCEL) for its financial year to Dec. 31, 2016, Britain's accounting watchdog said on Thursday.
During 2016 Luceco was the parent of companies that produced and distributed lighting products and wiring accessories, with subsidiaries in China and other countries.
"The breaches included failures in the design and performance of audit procedures, failures to adequately review and critically assess the audit evidence obtained, failure to document the audit work and failures by the respondents to apply professional scepticism," the Financial Reporting Council said in a statement.
The FRC said the breaches were made more serious by the fact that KPMG and its auditor for Luceco, Stuart Smith, were aware of inventory cost errors in the previous year.
"KPMG and Mr Smith co-operated with the FRC's investigation and admitted the breaches. The extent and timing of their admissions is reflected in the 30% discount which has been applied to the financial sanctions," the FRC said.
Smith, who no longer works at KPMG, was fined 50,000 pounds.
Cath Burnet, head of audit at KPMG UK, said the accounting firm is committed to dealing with and learning from its historical cases and regretted that aspects of its 2016 audit of Luceco fell short of required standards.
The FRC said that KPMG will have to analyse the underlying causes of the breaches and identify and implement any further remedial measures necessary to prevent a recurrence.
"We continue to invest significantly in training, controls and technology to improve quality and resilience in our audit practice," Burnet said.
Last year Smith admitted misconduct during an FRC spot check into the audit of software company Regenersis in 2015. He was fined 150,000 pounds and banned from practicising as an accountant for three years.
($1 = 0.8012 pounds)