Audit firm to Gupta metals empire fined and banned for 'egregious' failures

The UK's accounting watchdog, the Financial Reporting Council (FRC), has imposed fines and restrictions on audit firm King & King and its managing partner Milankumar Patel after a four-year investigation. The total fine amounts to £378,184, along with a severe reprimand and serious restrictions on audit work.

The FRC found that the six-partner firm, whose main office is located above a row of shops on London's Regent Street, had "failed to identify clear self-interest" when conducting over 140 audits of companies within metals tycoon Sanjeev Gupta's GFG Alliance between 2018 and 2020. These included Liberty Specialty Steels, Alvance British Aluminium, Liberty Steel Newport, and Liberty Performance Steels.

King & King heavily relied on fees from GFG Alliance companies, which accounted for nearly 41% of its revenues in 2021. Auditors are prohibited from taking more than 15% of their revenues from a single client, and the FRC has since updated its rules to clarify that this revenue cap applies to "a collection of entities with the same beneficial owner or controlling party."

The FRC stated that Patel and King & King "took a flawed and artificial approach to the ethical standards, resulting in pervasive breaches across all audits." They also failed to meet key audit requirements, including planning and risk assessment, income and expense recognition, going concern, and financial statement disclosures.

Gupta's GFG Alliance has been grappling with the fallout from the collapse of its former lender, Greensill Capital, in 2021. Greensill collapsed amid concerns over billions of pounds in risky loans to GFG companies, including £400 million under the coronavirus large business interruption loan scheme backed by an 80% government guarantee. Gupta's companies reportedly owed the lender £3.6 billion when Greensill collapsed.

GFG Alliance is now under investigation by the UK's Serious Fraud Office for suspected fraud, fraudulent trading, and money laundering. GFG has denied any wrongdoing and has said it will cooperate with the SFO.

Commenting on the penalties, the FRC's acting deputy executive counsel, Andrew Twomey, said: "It is paramount that statutory audits are performed with objectivity, independence and free from self-interest. The failures by Mr Patel and King & King to meet these requirements were particularly egregious. The widespread deficiencies across all the audits were a symptom of King & King's and Mr Patel's fee dependency on the GFG entities. The serious but commensurate sanctions, which include disgorgement of fees and prohibitions on Mr Patel performing future audits, send a clear message to the audit community that this behaviour will not be tolerated."

GFG and King & King did not immediately respond to requests for comment.