Julia Irvine 31 Oct 2017 01:59pm

KPMG hearing over Equity Red Star audit set for November

The Financial Reporting Council has announced that a date has now been set to hear a formal complaint against KPMG and two of its partners over their role in auditing Equity Syndicate Management Ltd (ESM) and Equity Red Star (Syndicate 218), a Lloyd’s motor insurance underwriter

They have been summoned to appear before a disciplinary tribunal, alongside Douglas Morgan, a former finance director of ESM and a member of CIMA, on Monday, 27 November, to answer allegations that their conduct fell significantly short of the standards reasonably to be expected of a member firm and a member.

The formal complaint is in two parts. The first relates to Morgan’s role in relation to ESM’s claims reserving process in the financial reporting years ending 31 December 2007-2009 and the provisions for outstanding claims included in the financial statements for those years of Syndicate 218.

The second relates to the audit of Syndicate 218 and considers the conduct of KPMG and Mark Taylor, the audit partner, in relation to 2008 and 2009 and of Anthony Hulse, a former KPMG partner who was the audit partner for IAG Holdings, then the syndicate’s UK parent, in relation to 2007. Both auditors are members of ICAEW and KPMG is a member firm.

The complaint raises questions about the audit, in particular the reserving, the sufficiency of evidence obtained and the unqualified opinions given.

When the formal complaint was launched against KPMG in September last year, the firm issued a statement in support of its work with the syndicate. “We take our audit responsibilities very seriously and, as we have commented previously, we believe that our audit work in relation to the Equity Red Star syndicate met the relevant professional standards,” it said.

“However, given that the matter is now subject to formal consideration by a tribunal, we will not be commenting further.”

In a settlement with the FRC in August this year, James Rakow, an associate partner in Deloitte who provided actuarial services to ESM and Syndicate 218 between 2007 and 2009, admitted misconduct and agreed to a £75,000 fine, a severe reprimand and a contribution towards the FRC’s costs of £400,000.