The Financial Reporting Council (FRC), Britain’s accounting watchdog, has launched a formal investigation into KPMG’s audit of Entain’s 2022 financials. Entain, the gambling giant behind brands like Ladbrokes and Coral, has been under scrutiny following a series of controversies, with this latest probe raising fresh concerns over the role of auditors in safeguarding corporate accountability.
The FRC’s Audit Probe
The investigation, announced on Monday, is part of the FRC’s Audit Enforcement Procedure and will be handled by its enforcement division. The watchdog is examining whether KPMG’s audit adhered to professional standards and regulatory requirements.
KPMG, one of the “Big Four” accounting firms, has pledged full cooperation with the FRC. A spokesperson for KPMG UK commented, “We will cooperate fully with the FRC to conclude this matter as quickly as possible.”
Meanwhile, Entain has declined to provide any statements about the probe or its connection to prior issues, including a settlement with HM Revenue and Customs (HMRC) in 2023 over bribery allegations tied to its former Turkish operations.
Entain’s Past and the Turkish Operations Scandal
Entain’s troubles are rooted in its previous ownership of a Turkish-facing online betting business, held from 2011 to 2017. In 2023, the company reached a deferred prosecution agreement (DPA) with the Crown Prosecution Service (CPS) after a years-long investigation into corporate bribery.
The settlement included a staggering £585 million ($711.65 million) liability, recorded in its 2023 accounts, with additional contributions pushing the total payment to £615 million ($759.55 million). These included:
- £20 million ($24.70 million) donated to charity.
- £10 million ($12.35 million) for covering costs incurred by HMRC and the CPS.
Entain’s chairman at the time, Barry Gibson, emphasised that these issues predated the current management team. “This legacy matter concerns a business sold six years ago. The group has changed immeasurably since these events took place,” he stated.
KPMG’s Reputation in Question
KPMG’s handling of Entain’s audits is the latest in a series of challenges for the firm. It has faced criticism for its role in several high-profile corporate collapses, most notably Carillion, a British construction giant that went under in 2018.
In 2023, KPMG was fined £21 million ($26 million) after regulators deemed its Carillion audits a “textbook failure.” This fine added to mounting pressure on the firm to rebuild its reputation.
For Entain, KPMG has served as its external auditor for six years, according to the company’s latest annual report. The investigation is expected to examine whether the audit firm’s work met expected standards, particularly in light of the £615 million settlement recorded in Entain’s financial statements.
Impact on Entain and Its Investors
The FRC’s announcement has rattled Entain’s shareholders. The company’s stock fell nearly 2% on Monday morning, making it the worst-performing stock on the FTSE 100 index. Investor confidence has been further shaken by a £100 million ($123.5 million) compensation claim from shareholders, alleging that Entain failed to disclose its bribery and corruption issues in a timely manner.
This latest development adds to a growing list of challenges for Entain, as it navigates a path toward rebuilding trust and maintaining market stability.
What Lies Ahead?
The investigation underscores the growing accountability expected of auditors and the critical role they play in ensuring corporate transparency. For KPMG, this probe will serve as yet another test of its ability to uphold industry standards, while Entain must contend with the fallout from its historical controversies.
Both entities face intense scrutiny in the coming months, as the FRC works to determine whether the audit failures contributed to missed red flags in Entain’s financial reporting.
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