Carillion collapse: FRC to investigate KPMG over audit work

Carillion collapse: FRC to investigate KPMG over audit work

The FRCs investigation will determine whether KPMG breached any relevant requirements, particularly the ethical and technical standards for auditors

Carillion collapse: FRC to investigate KPMG over audit work

The Financial Reporting Council (FRC) has opened an investigation into KPMG’s audit work for embattled construction company Carillion, which entered into compulsory liquidation earlier this month.

The investigation, which was sparked by enquiries made since Carillion’s profit warning in July 2017, will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017.

KPMG signed off on Carillion’s financial statements in March despite the company issuing a profit warning four months later prompted by a £845m write-down in the value of its contracts. Following the revelations of sharp rises in debt, the company hired EY to review its finances.

The watchdog will determine whether KPMG breached any audit requirements, particularly ethical or technical standards.

The FRC confirmed it would examine several areas of KPMG’s work, including “the audit of the company’s use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts, and accounting for pensions”.

The FRC said it hopes to “conduct the investigation as quickly and thoroughly as possible.”

KPMG said it had conducted its role as Carillion’s auditor “appropriately and responsibly” but would co-operate with the investigation fully.

This investigation will run alongside the FRC looking into “the conduct of professional accountants within Carillion in connection with the preparation of the financial statements and other financial reporting obligations under the Accountancy Scheme.”

The FRC said it is liaising closely with the Official Receiver, the Financial Conduct Authority, the Insolvency Service and The Pensions Regulator to ensure a cohesive approach in the investigations.

MPs from the Business, Energy and Industrial Strategy and Work and Pensions select committees were reported to have written to all Big Four firms asking for clarity on any work carried out by them for Carillion.

Partners from PwC have been appointed as special managers to assist with the company’s liquidation. The firm has also been advising the government on Carillion’s pension liabilities.

Carillion’s collapse has wide implications for the public sector, as the company held several outstanding government contracts including for the HS2 rail, NHS hospitals and prison facilities.

The government’s actions surrounding the collapse have also been called into question, particularly why contracts worth £2bn were awarded to Carillion after it issued three profit warnings.

Here are some steps companies can take to avoid a Carillion collapse.

Whitepaper

The Future of Finance is in the CFO's Hands

Business The Future of Finance is in the CFO's Hands

1m
Save a Week a Month Consolidating Accounts

Accounting Software Save a Week a Month Consolidating Accounts

2m
Mitigating Risk Through Internal Control

Legal Mitigating Risk Through Internal Control

3m
Could tax season have run more efficiently?

Corporate Tax Could tax season have run more efficiently?

3m

Related Articles

KPMG UK announce new audit structure – but is it enough?

Audit KPMG UK announce new audit structure – but is it enough?

4d Tom Lemmon
Will Deloitte get 5-year ban in India?

Audit Will Deloitte get 5-year ban in India?

2w Tom Lemmon
The CMA has released its final report into the future of the audit market

Audit The CMA has released its final report into the future of the audit market

1m Beth McLoughlin, Managing Editor
The madness of audit independence

Audit The madness of audit independence

1m Clive Viegas Bennett, CEO of MGI Worldwide
Life after BHS, Carillion, & Patisserie Valerie: Is there light at the end of the tunnel for audit?

Audit Life after BHS, Carillion, & Patisserie Valerie: Is there light at the end of the tunnel for audit?

1m Lucy Skoulding, Reporter
Audit vs R&D: “There is a clear conflict which accountancy firms aren’t dealing with”

Audit Audit vs R&D: “There is a clear conflict which accountancy firms aren’t dealing with”

2m Beth McLoughlin, Managing Editor
Top accounting scandals in 2018

Audit Top accounting scandals in 2018

2m Virginia Blackburn
Sir Donald Brydon appoints team for his audit review

Audit Sir Donald Brydon appoints team for his audit review

3m Beth McLoughlin, Managing Editor