FRC to hear new Carillion complaints against KPMGby
Proceedings will get underway Thursday morning (12 May) at a formal FRC hearing into the conduct of KPMG and its staff relating to the audits of listed companies Carillion and Regenersis.
The formal complaint of misconduct against KPMG and certain employees relate to allegedly supplying false and misleading information and/or documents to audit quality reviews conducted by the Financial Reporting Council (FRC) into the 2016 Carillion audit and the audit of Regenersis for the year to 30 June 2014.
The hearing picks up the threads from a previous session in January, during which KPMG staffers admitted to falsifying documentation about the Carillion audit. Alistair Wright, a KPMG group senior manager, submitted a written statement to the January hearing denying any misconduct relating to the Regenersis audit, but that evidence could be tested in the latest hearing.
The alleged misconduct and audit failures have become a recurring theme at the Big Four firm, going back to the FRC’s 2021 audit quality inspections report that found that only 61% of the KPMG audits reviews were of acceptable quality.
As former Peat Marwick employee Richard Murphy put it in a catalogue of KPMG audit scandals in February: “That looks uncomfortably like systemic failure.”
Official Receiver’s lawsuit
Carillion remains the ugliest potential blot on KPMG’s reputation. In addition to the FRC’s audit review misconduct allegations, the firm is currently wrestling with a £1.3bn claim brought by the Official Receiver on behalf of creditors.
KPMG acted as Carillion’s auditor for 19 years, for which it received £29m in fees. In the year leading up to its 2017 collapse, Carillion reported more than £1.2bn in contractual writedowns, which exceeded its market capitalisation and matched the combined total of the previous seven years’ profit.
The auditor did not qualify the financial results for the year to 31 December 2016, or any previous year.
The Official Receiver’s lawsuit seeks damages based on £1bn in trading losses, £31m in professional fees and £210m in dividends that would never have been paid out if the company’s accounts had been correctly audited.
The Official Receiver argued that KPMG failed to maintain professional independence and missed multiple “red flags” that should have alerted the auditors to the potential risk of misstatements. “No reasonably competent auditor would have signed unqualified audit opinions on the Carillion group’s 2014–16 financial statements,” the claim alleged.
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