KPMG audit partner Andrew Walker has also been fined £125,000 by the watchdog for his conduct on the Co-op Bank audit.
The sanctions were imposed after KPMG and Walker admitted to misconduct regarding the bank’s audit for the year ended 31 December 2009.
In their admission, KPMG and Walker said their conduct “fell significantly short” of that expected in two separate areas surrounding fair value adjustments (FVAs) shortly after Co-op’s merger with Britannia Building Society.
The misconduct included failure to obtain sufficient appropriate audit evidence as well as failures in exercising sufficient professional scepticism.
They also failed to inform the bank of inadequate disclosure of the expected lives of a series of loan notes acquired from Britannia in financial statements.
A KPMG spokesperson said the firm has noted the announcement by FRC regarding its 2009 audit.
“We regret that some of our audit work around specific elements of the bank’s [FVAs] did not meet the appropriate standards.
“The work in question was conducted almost a decade ago and we have significantly enhanced our procedures and training around the areas in question since then,” they added.
Following a settlement Walker will pay £100,000 while KPMG will pay £4m plus £500,000 towards the FRC’s costs.
A separate KPMG audit team will also provide additional reviews and reports to the FRC on audit engagements with credit institutions for 2019, 2020 and 2021.
In 2016, the FRC imposed a £20,000 fine on former Co-op Bank CFO and CEO Barry Tootell after he admitted failing to act with due skill, care and diligence in managing the bank between 2009 and 2013.
A chartered accountant, Tootell also agreed to a six-year exclusion from ICAEW membership and was also banned from holding any senior roles in the City of London for life by the Prudential Regulation Authority.