SECTION A [40 Marks] Read the case study below and answer ALL the questions that follow. KPMG fined 3m for 'serious failings' in Conviviality audit KPMG has been fined 3m for failures during its audit of the Bargain Booze owner Conviviality and severely reprimanded in the latest blow to its reputation. The accounting regulator, the Financial Reporting Council (FRC), found "a serious lack of competence" in KPMG's 2017 audit of the company, which collapsed within nine months of the accounts being signed off. The initial fine was 4.3m, but this was reduced because the firm admitted the failings. The KPMG partner in charge of the audit, Nicola Quayle, was also fined 110,000 and given a severe reprimand. Quayle, who previously led KPMG's Manchester office and sat on its UK board, will pay 80,850, after receiving a discount for admitting the failures. Conviviality was the owner of brands including Wine Rack and the high-end wine retailer Bibendum, and it also distributed drinks to major hospitality chains including JD Wetherspoon, Yates and Slug and Lettuce. It was worth 500m and had 4,000 staff in March 2018, but by early April it had collapsed into administration after investors realised that its series of acquisitions had left it overextended. It is the latest in a string of audit scandals for KPMG. It has also admitted misconduct over its audit of Carillion, the government contractor that went bust in 2018. A disciplinary tribunal heard on Tuesday that the partner leading that audit was deliberately trying to portray himself as negligent to avoid a charge of misconduct, according to counsel for another member of the audit team. The partner denied the allegation and denies misconduct. KPMG also received a near-record fine of 13m for misconduct in August related to a conflict of interest in the sale of the bed company Silentnight to a private equity firm. The FRC said "KPMG should have been more professionally sceptical" of Conviviality's claims to have somehow exceeded earnings targets at the last minute. It also failed to check adequately for fraud and failed to obtain evidence of the company's claims across five separate areas, the regulator said. The deputy executive counsel to the FRC, Claudia Mortimore, said: "The audit failings in this case were serious, spanned several significant areas of the financial statements and related to a number of fundamental auditing standards including the requirement to obtain sufficient appropriate audit evidence, apply sufficient professional scepticism, and prepare proper audit documentation. The sanctions reflect the seriousness of the failings. "The sanctions also reflect the poor regulatory track record of each of the respondents and are intended to enhance the quality and reliability of future audits." The regulator also found, however, that the failures were not "intentional, dishonest, deliberate or reckless". The chief executive of KPMG in the UK, Jon Holt, said: "I'm sorry that our work wasn't good enough in this instance. I am committed to resolving, and learning from, our past cases and this development marks another step forward in dealing with these matters. We have fully cooperated with the FRC throughout their investigation." Source: theguardian.com (2022) KPMG fined 3m for 'serious failings' in Conviviality audit [online]. Available from: https://www.theguardian.com/business/2022/jan/19/kpmg-fined-43m-for-serious-failings-in-conviviality-audit [Accessed on: 13 February 2022] Answer ALL the questions in this section. SECTION B [60 Marks] Answer ANY THREE (3) questions in this section. QUESTION 1 The case study is an example of how the Auditing profession is under performing. Even some of the most respected firms are not immune to it. Discuss the fundamental principles that the chartered accountant should comply and which of them did KPMG fail to uphold in this case study and justify your response. 1.1 (10 marks) 1.2 Discuss the relevant principles that was not upheld and what should have been done?. (10 marks)