ICAI issues fine and reprimands over Matbro audit

KPMG, one of accountancy's 'Big Four', has been fined and issued with a reprimand over its audit of a subsidiary of Dungannon-based company Powerscreen International.

Following a three-year investigation by the Irish Institute of Chartered Accountants' (ICAI) Committee of Inquiry, KPMG and Mr Saunders Graham (then an audit partner at KPMG) were issued with reprimands, with KPMG ordered to pay €430,000 to the Institute towards the costs of the inquiry.

The inquiry, which began in October 1999, looked at events surrounding Powerscreen and their subsidiary Matbro.

On November 4, 1997, Powerscreen announced pre-tax half-year profits of £23.6 million, and a month later placed 3,000,000 shares on the market – raising £18 million. Subsequently, on January 27, Powerscreen informed the London Stock Exchange that "irregularities" had occurred in its subsidiary Matbro giving rise to a £47 million provision against pre-tax profits – equating to an estimated pre-tax loss of £10 million. The company's shares went into free-fall, slipping IR£6.50 to IR£2.95 in the days that followed.

According to the committee, the audit of the financial statements of Matbro Ltd and Matbro (NI) Ltd for the year ended March 31 1997, "in terms of efficiency and competence, fell below the standard to be expected of an auditor regulated by the ICAI".

The committee added that there was a "lack of corroboration of management explanations and representations [and] inadequate application of professional scepticism during the course of the audit".

The committee has however suspended action against a number of its members, pending the outcome of criminal proceedings which are being taken by the Serious Fraud Office in the UK. A hearing will be held in October with a trial date pencilled in for March 10 2003 at Bristol Crown Court over "accounting irregularities" relating to the affair.

KPMG said that it "acknowledges the criticisms" made "regarding certain aspects" of the Matbro audit.

"The partnership accepts that the work, in this particular case, fell below its own rigorous standards. The firm, in common with the profession as a whole, has adopted additional procedures in the years since these events occurred to improve the prospect of detection by auditors of the types of serious accounting irregularities that occurred within Matbro," a statement by the company said.

The committee accepted that KPMG had no role in the raising of £18 million by Powerscreen, and also accepted that the audit engagement partner, Saunders Graham, had "ultimate responsibility for the conduct of the audit, and for issuing an opinion on the financial statements".

(GMcG)