The big four auditor was told it could face a fine of up £4.5 million but saw this reduced after admissions related to the case, the Financial Reporting Council (FRC) said.
Claudia Mortimore, deputy executive counsel to the FRC, said: “It is essential that auditors are alive to the risks of companies’ non-compliance with laws and regulations, and conduct work in this area with care and sufficient professional scepticism.
“This is particularly so when the audited entity is in a sector where such risks are known to be prevalent.
“The package of financial and non-financial sanctions imposed in this case should help to improve the quality of future audits.”
Jon Holt, chief executive of KPMG in the UK, said: “When I came into my role as chief executive, I said that we would move swiftly to resolve and learn from our outstanding regulatory cases.
“I am pleased we have now concluded this historic matter and I’m sorry that elements of our work in the full-year 2010 audit of Rolls-Royce Group plc did not meet the professional standards required.
“In addition to resolving legacy cases, we are also investing significantly in training, controls and technology to improve quality and resilience in our audit practice.”