The UK’s Financial Reporting Council (FRC) has launched an investigation into KPMG’s audit of Entain PLC’s (ENT.L) financial statements for the year ending December 31, 2022. The investigation, announced on Monday, will be carried out by the FRC’s enforcement division under its Audit Enforcement Procedure.
A spokesperson for KPMG UK confirmed, “We will cooperate fully with the FRC to conclude this matter as quickly as possible.” Entain, the global gambling operator behind major brands like Ladbrokes and Coral, has declined to comment on the probe.
Background on KPMG and Entain
KPMG, one of the “Big Four” global accounting firms, has been Entain’s external auditor since 2017, overseeing the gambling company’s financial reporting. Entain is a leading player in the gambling industry, operating both online and retail platforms. It owns popular betting brands such as Coral, Ladbrokes, Bwin, and PartyPoker.
The relationship between KPMG and Entain has faced scrutiny over the years, as the gambling sector is subject to heightened regulatory and financial oversight. Auditing firms operating in this space must navigate the complexities of compliance with anti-money laundering (AML) regulations, tax obligations, and financial transparency.
Entain’s recent history has been marred by regulatory issues. In 2023, the company agreed to pay a £585 million ($711.65 million) penalty under a deferred prosecution agreement with the UK’s Crown Prosecution Service. The penalty stemmed from alleged bribery offenses connected to its former Turkish operations, following a multi-year investigation initiated by HM Revenue and Customs (HMRC) in 2019.
KPMG’s Reputation Under Fire
The investigation into KPMG’s audit of Entain comes amid broader challenges for the firm. KPMG has faced significant reputational damage in recent years, following a series of high-profile audit failures.
Notably, the collapse of Carillion, a British construction giant, in 2018 exposed severe shortcomings in KPMG’s auditing practices. The FRC described KPMG’s work on Carillion’s accounts as a “textbook failure” and imposed a record £21 million ($26 million) fine on the firm in 2023.
The FRC’s latest probe adds to mounting scrutiny of KPMG’s auditing standards, particularly in industries prone to financial and regulatory risks, such as gambling.
The Challenges of Auditing in the Gambling Sector
Auditing companies like KPMG face unique challenges when working with gambling operators. The sector’s complex financial structures, high cash flows, and exposure to global markets demand rigorous checks on compliance, AML protocols, and ethical business practices.
For Entain, which operates in multiple jurisdictions and oversees both digital and retail betting platforms, ensuring transparency in financial reporting is critical. Regulators and auditors must guard against risks such as money laundering, tax evasion, and bribery, all of which have been areas of concern for the gambling industry.
As KPMG enters its seventh year as Entain’s external auditor, the ongoing FRC investigation could have significant implications for both companies. For KPMG, the probe represents another test of its commitment to restoring confidence in its auditing practices. For Entain, the scrutiny underscores the challenges of operating in a highly regulated and closely monitored sector.
Industry observers will be closely watching the outcome of the FRC’s investigation, which could shape the future of auditing practices in the gambling industry and beyond.