Accountancy giant KPMG has been fined for failing to spot a hole in the accounts of a subsidiary of Northern Irish engineering firm Powerscreen in 1997.

The Institute of Chartered Accountants in Ireland also reprimanded KPMG as part of an investigation into one of Ireland's biggest financial scandals, which became known as the Powerscreen affair.

The events date back to late 1997 when Powerscreen reported half-year pre-tax profits of �23.6m ($37m) and went on to raise �18m through a share placing on the stock market.

However, a month later, the group revealed accounting irregularities in its British subsidiary Matbro which led to a �47m provision against pre-tax profits.

Poor standard of auditing

On Monday, Irish regulators ordered KPMG and Saunders Graham - an audit partner at the time of the events - to pay �275,000 ($430,000) to the institute towards the costs of the inquiry.

A committee set up to investigate how the institute's members acted during the Powerscreen affair had concluded that KPMG and Mr Graham "fell below the standard to be expected of an auditor regulated by the ICAI".

KPMG said: "The partnership accepts that the work in this particular case fell below its own rigorous standards."

The accountancy firm added that since 1997 it had improved its procedures to prevent further irregularities, and pointed out that it had no role in the �18m fundraising by Powerscreen.

Serious Fraud investigation

A number of people have been charged in connection with the affair since an investigation was launched by the UK's Serious Fraud Office in 1998.

Dungannon-based Powerscreen said the irregularities centred around mispricing machinery to try to compete in European markets, along with unauthorised discounts and inaccurate and misleading recording of costs.

Matbro was sold to US tractor giant John Deere for �7m in 1998 while Powerscreen was itself bought the following year by US construction and mining equipment maker Terex Corp.