The UK’s Financial Reporting Council (FRC) has launched an investigation into the auditing practices of KPMG, the Big Four accounting firm, with regard to its audit of Entain plc’s financial statements for the year ending December 2022. The investigation, which was confirmed in a statement released on January 20, 2025, focuses specifically on KPMG’s role in examining the gambling giant’s accounts. The FRC has not yet disclosed the exact details of the concerns, but the probe adds to a series of regulatory challenges for the accounting firm, which has faced multiple controversies in recent years.

KPMG’s investigation comes after multiple scandals:

KPMG, which has been Entain’s external auditor since 2018, is facing increasing pressure as it navigates this new investigation. This comes after the firm’s tarnished reputation, with one of its most significant failures being its role in the 2018 collapse of the UK outsourcing company Carillion. The fall of Carillion resulted in widespread financial damage and led to the FRC fining KPMG £21 million ($26 million) in 2023 for its audit deficiencies in relation to the company. In addition to Carillion, KPMG has also been sanctioned for its auditing work with high-profile clients like Rolls-Royce and BNY Mellon.

The FRC’s scrutiny over KPMG’s audit of Entain comes as the gambling company has also been embroiled in its own legal challenges. According to The Guardian, in 2023, Entain, which owns well-known brands such as Ladbrokes, Coral, and Sportingbet, settled with the UK’s tax authority, HM Revenue and Customs (HMRC), for £585 million ($711.65 million). The settlement was part of a deferred prosecution agreement (DPA) related to bribery allegations concerning its former Turkish unit. The DPA allowed Entain to avoid criminal charges while complying with strict conditions.

Despite the settlement, the shadow of the bribery scandal continues to hang over the company. The FRC’s investigation into KPMG’s audit is likely connected to Entain’s financial reporting during this troubled period. However, neither Entain nor KPMG has confirmed whether the audit investigation is directly related to the bribery case.

In addition to its financial settlement, Entain has also been the subject of a civil suit. Investors are seeking more than £100 million in compensation from the company, claiming that it failed to disclose crucial information about the bribery investigation and its impact on the company’s financial position. The case relates to a Turkish-facing online betting operation that Entain owned between 2011 and 2017. While Entain no longer owns this business, the company is facing continued fallout from its previous management’s handling of the situation.

Entain’s response to the ongoing investigation and its legal issues has been somewhat restrained. The company declined to comment on the FRC’s investigation and has not publicly speculated on the impact it might have on its operations. However, a spokesperson for KPMG stated that the firm would “cooperate fully with the FRC to conclude this matter as quickly as possible,” emphasizing its commitment to resolving the issue.

KPMG’s challenges amid regulatory scrutiny:

KPMG’s difficulties extend beyond its involvement with Entain. The accounting firm has faced disciplinary actions in 17 separate cases since the Carillion collapse, making it the subject of considerable regulatory scrutiny. The FRC has become increasingly aggressive in its oversight of audit firms, particularly those in the Big Four.

As KPMG deals with these challenges, it is also navigating internal issues, including workforce reductions. The firm reported a 6% increase in audit revenue for the fiscal year ending September 30, 2023, but also announced job cuts in its US audit division. Approximately 330 US-based employees were laid off, representing about 4% of the firm’s audit workforce. Similar reductions have occurred across other divisions, as KPMG adjusts to shifting market conditions and reduced demand for consultancy services.

The FRC’s investigation into KPMG adds to the mounting pressure facing the firm, which has been striving to restore its reputation after a series of high-profile audit failures. The FRC’s audit enforcement procedure allows it to impose financial penalties or sanctions on both the firm and the specific lead audit partner involved. These penalties, if imposed, would be directed to HM Treasury.