UK audit regulator fines King & King, bans partner over GFG audit failures

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UK audit regulator fines King & King

Highlights

The Financial Reporting Council fines King & King £52,000 and bans it from auditing UK public interest companies for five years due to egregious failures in Gupta group audits.
Managing partner Milan Patel receives a £326,184 fine, loses responsible individual status for three years, and faces an additional two-year bar from reinstatement.
King & King generated over 40 per cent of 2021 revenue from GFG entities, breaching auditor independence rules prohibiting over 15 per cent fee dependency from a single client.

Sanctions over GFG audit work

As reported by the Financial Reporting Council, King & King and its managing partner Milan Patel face fines, practice restrictions and severe reprimands over what the regulator calls egregious failures in statutory audits of Gupta group companies.

The watchdog says the sanctions follow a four-year investigation into audits of four GFG Alliance businesses in 2019 and 2020. It says the firm failed to identify clear self-interest threats, resulting in pervasive breaches across all audits and failures to meet key audit requirements.

The FRC says Patel is fined £326,184, including disgorgement of financial benefit and a penalty reduced for early settlement. It also orders the withdrawal of his status as a responsible individual, barring him from carrying out statutory audit work for three years and preventing him from applying to regain that status for a further two years.

King & King is fined £52,000 after a discount for admissions and early disposal. The firm is also ordered not to seek registration to audit UK public interest companies for five years, is barred from auditing high-turnover companies for two years, and must complete training and submit to monitoring by the ICAEW professional body.

Independence concerns hit audit sector

The regulator says the widespread deficiencies reflect fee dependency on GFG entities, with King & King generating more than 40 per cent of its revenue in 2021 from companies in the alliance. Auditors are prohibited from regularly deriving more than 15 per cent of total fee income from a single client.

King & King carried out more than 140 audits from 2018 to 2020 for companies across GFG’s steel, aluminium and energy operations. The group, which at its peak employs 35,000 people, consists of hundreds of separately audited companies and, unusually for a business of its scale, does not produce consolidated accounts.

The firm’s role comes under sharper focus after the 2021 collapse of Greensill, the main lender to Gupta’s businesses, in a scandal that also draws in former prime minister David Cameron. King & King and Patel do not respond to a request for comment.

Our earlier update on HSBC (HSBA) focused on how regulatory pressure and penalties were influencing the group’s risk outlook and near-term sentiment. It also noted HSBC’s simultaneous push to strengthen longer-term fee streams through new capital raised by its asset-management business, while technical signals pointed to a largely range-bound trading setup.

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