The UK's Financial Reporting Council (FRC) has imposed £378,184 in fines on London-based audit firm King & King and its managing partner, Milankumar Patel, following a four-year investigation into their work for several companies within Sanjeev Gupta's GFG Alliance. The watchdog described the audit failures as 'egregious', highlighting widespread deficiencies that compromised the independence of the audits. This comes as no surprise given that fees from GFG clients accounted for nearly 41% of King & King's total revenue in 2021, breaching the FRC's auditor independence rules by a significant margin.
The investigation found pervasive breaches across all GFG audits, including failures in key audit requirements such as adequate planning and risk assessment, accurate income and expense recognition, going concern assessments, and transparent financial statement disclosures. The FRC has since clarified its rules to explicitly state that the revenue cap applies to 'a collection of entities with the same beneficial owner or controlling party', addressing the structure of holding companies like GFG Alliance.
The context for these audit failures is the wider scrutiny surrounding Sanjeev Gupta's GFG Alliance, which has been navigating the fallout from the collapse of its former primary lender, Greensill Capital, in 2021. Greensill's demise was linked to billions of pounds in high-risk loans extended to GFG companies, including approximately £400 million facilitated through the Coronavirus Large Business Interruption Loan Scheme (CLBILS), which benefited from an 80% UK government guarantee.
The conglomerate is currently under investigation by the UK's Serious Fraud Office (SFO) for 'suspected fraud, fraudulent trading and money laundering', with GFG denying any wrongdoing. The FRC's findings serve as a stark reminder of the importance of auditor independence and the need for robust regulatory oversight in maintaining investor trust and confidence in financial markets.