The UK's Financial Reporting Council (FRC) has delivered a stern rebuke to audit firm King & King, slapping it with a £245,000 fine – later reduced to £171,500 after settlement discounts – and banning it from auditing public interest entities for three years. This punitive measure is the result of the FRC's investigation into the firm's audits of Liberty Speciality Steels (UK) Ltd and Liberty House Group Pte Ltd, which are part of Sanjeev Gupta's sprawling GFG Alliance conglomerate. The watchdog identified "egregious" and "pervasive" failures in King & King's work, with the breaches relating to its audits for the financial year ending 31 March 2019.
The FRC's investigation revealed a critical lack of independence at King & King, as well as a failure to exercise professional scepticism when scrutinising the conglomerate's finances. Specifically, the audit firm failed to identify and address significant accounting irregularities, with the breaches having far-reaching implications for investors, creditors, and other stakeholders. The affected companies are significant players in the UK steel industry, with Liberty Steel being a major producer of speciality steels.
The FRC's enforcement action has been welcomed by market observers, who argue that it underscores the importance of robust and independent audits in maintaining investor confidence and promoting good corporate governance. The watchdog highlighted that the breaches were "fundamental" and undermined the very purpose of an audit – to provide independent assurance on financial statements. With the GFG Alliance facing ongoing scrutiny over its financial arrangements and governance, this enforcement action serves as a timely reminder of the need for auditors to adhere to the highest standards of professionalism and integrity.
The sanctions imposed on King & King are also expected to have a ripple effect throughout the auditing community, with the FRC's findings serving as a warning to other firms of the importance of maintaining independence and exercising professional scepticism. In addition to the fines levied against the firm, two senior individuals – Dipak Raja and Shazad Ahmed – faced sanctions, with Mr Raja being fined £60,000 (later reduced to £42,000) and prohibited from signing audit reports for public interest entities for five years, while Mr Ahmed received a fine of £45,000 (later reduced to £31,500) and a three-year prohibition.