KPMG has been fined almost £1.5 million by the UK accounting watchdog over its audit of advertising firm M&C Saatchi.

The Financial Reporting Council (FRC) announced the sanctions against the big-four financial firm and auditor Adrian Wilcox on Monday, almost three years after a probe was first launched into the firm.

It came after M&C Saatchi found accounting errors which led to the restatement of its company accounts for 2018.

The FRC found breaches including a failure to “audit with professional scepticism”.

KPMG’s audit did not meet the required quality standards in a number of respects, amounting to serious audit failings and breaches of audit standards

It said revenues were inflated by around £1.2 million as a result of the failures linked to client credit payments.

These were ultimately revised in M&C Saatchi’s annual accounts for 2019.

The investigation also found “failures to properly audit journal entries across a number of subsidiary companies”, including failures in identifying potentially high-risk journals.

In addition, there was a failure to “document the auditors’ reasoning, or complete their inquiries with management” in relation to rebates related to one contract.

The regulator said the breaches “undermine confidence in statutory audit and the truth and fairness of financial statements”.

KPMG was set to receive a £2.25 million fine but this was reduced to £1.46 million after work to improve its audit processes since the failings.

The accounting giant also paid the costs of the investigation.

Mr Wilcox, the audit engagement partner at the firm, was set to be fined £75,000 but this was reduced to £48,750.

We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi plc fell short of required standards

Claudia Mortimore, deputy executive counsel at the FRC, said: “KPMG’s audit did not meet the required quality standards in a number of respects, amounting to serious audit failings and breaches of audit standards.

“This included a lack of professional scepticism in certain high-risk areas of the audit and basic failings in journal testing.”

Cath Burnet, head of audit at KPMG UK, said: “We are committed to dealing with, and learning from, our past cases and regret that aspects of our 2018 audit of M&C Saatchi plc fell short of required standards.

“We continue to invest significantly in audit quality, in our training, controls and technology, to drive further improvements and resilience in our audit practice.”

It comes five months after KPMG was handed a record £21 million fine by the FRC over its “very bad” work for collapsed outsourcing firm Carillion.