FRC probe lands KPMG, Entain in soup: controversy explained

Sankunni K January 20, 2025
FRC probe lands KPMG, Entain in soup: controversy explained

The Financial Reporting Council (FRC) has launched an investigation into KPMG’s audit of Entain plc’s financial statements for the year ending 31 December 2022. The probe intensifies scrutiny on both the Big Four audit firm and Entain, a major gambling company that owns Ladbrokes, Coral, and other global gaming brands. This development comes amid a series of regulatory challenges faced by both entities, raising questions about compliance and governance practices in the corporate and auditing sectors.

The FRC investigation

The FRC, tasked with regulating auditors and promoting high-quality corporate reporting, announced its inquiry on 19 January 2025. The investigation will assess whether KPMG adhered to audit regulations and standards in its review of Entain’s financial statements. In response to a media query, a spokesperson for KPMG stated, “We will cooperate fully with the FRC to conclude this matter as quickly as possible.”

The announcement follows significant prior penalties imposed on KPMG for audit failures in unrelated cases, including a £21 million fine over its audit of Carillion’s financial statements in 2018. Such lapses have prompted regulatory bodies to closely monitor the firm’s audit practice.

Entain’s regulatory troubles

Entain, one of the largest players in the global gambling industry, has been no stranger to controversy. The FRC’s investigation adds to its mounting legal and regulatory challenges, both in the UK and internationally:

  • Bribery allegations and HMRC penalty: In May 2023, Entain agreed to pay a £585 million settlement to HM Revenue & Customs over bribery allegations linked to its now-discontinued Turkish operations. The settlement stemmed from accusations that Entain’s employees facilitated illegal activities between 2011 and 2017.
  • AUSTRAC investigation in Australia: In 2024, the Australian Transaction Reports and Analysis Centre (AUSTRAC) initiated civil penalty proceedings against Entain for failing to comply with anti-money laundering and counter-terrorism financing laws. AUSTRAC alleged that Entain’s platforms, including Ladbrokes and Neds, failed to conduct adequate risk assessments, exposing them to significant risks of criminal exploitation.
  • UK Gambling Commission fine: In August 2022, Entain paid a record £17 million settlement to the UK Gambling Commission for regulatory breaches, including failures to prevent money laundering and protect vulnerable customers. This marked one of the largest penalties imposed on a gambling company in the UK.

Entain has declined to comment on a media query regarding the FRC probe.

Timeline of events

  • 2011-2017: Alleged bribery by Entain’s employees in Turkey.
  • 2018: KPMG begins auditing Entain’s financial statements.
  • August 2022: UK Gambling Commission fines Entain £17 million for regulatory failings.
  • September 2024: AUSTRAC initiates legal action against Entain for systemic anti-money laundering failings.
  • January 2025: FRC launches an investigation into KPMG’s audit of Entain’s 2022 financial statements.

Potential implications

The FRC’s probe is significant for both KPMG and Entain. For KPMG, the investigation’s findings could influence its reputation and ability to secure high-profile audit clients. As the firm faces increasing scrutiny, its leadership has stressed investments in improving audit practices to prevent future failures.

For Entain, the investigation compounds its already precarious position. Regulatory penalties and legal challenges have significantly impacted its market perception and financial stability. Following the announcement of the FRC’s probe, Entain’s stock price dropped 2.24 percent to an intraday low of 654.60 GBX on Monday.

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