KPMG allegedly misled FRC over Carillion auditby
KPMG has been accused of providing false and misleading information to the Financial Reporting Council (FRC) in its audits of outsourcing giant Carillion and Regenersis.
The FRC today announced a disciplinary complaint against the Big Four firm and former and current KPMG partners including Peter Meehan, who was the engagement partner for the Carillion audit.
The accounting regulator alleges KPMG and several individuals, all ICAEW members, provided the FRC misleading information in the audit quality inspections of Carillion for the period ended 31 December 2016 and Regenersis for the period ended 30 June 2014.
The individuals at the centre of the misconduct complaints include Meehan and Stuart Smith, the engagement partner for the Regenersis audit. The allegations are made against each partner in respect of their conduct on the audit they ran.
The regulator notes that the formal complaint relates only to “false and misleading information” and does not allege any misconduct in relation to the performance of the audits or that the financial statements had not been properly prepared.
These questions will hopefully be answered in two separate Carillion investigations. The first, announced on 29 January 2018, probes KPMG’s audit of the financial statements of Carillion; the scope of the investigation was widened in 2019 to include the inspection of the 2014 audit of the data erasure management company Regenersis.
The second investigation announced 19 March 2018, scrutinises the conduct of Carillion’s former finance directors and their preparation and approval of the financial statements.
A disciplinary tribunal on 10 January 2022 will determine whether KPMG and the former and current partners and employees committed misconduct.
“We take this matter extremely seriously,” a KPMG spokesperson said. “We discovered the alleged issues in 2018 and 2019, and on both occasions immediately reported them to the FRC and suspended the small number of people involved.
“The allegations in the formal complaint would, if proven, represent very serious breaches of our processes and values. We have cooperated fully with our regulator throughout their investigation.”
KPMG has faced criticism over its audits of Carillion ever since the UK government contractor collapsed in 2018, taking with it 3,000 jobs and 450 public sector projects. The outsourcing giant amassed more than £900m worth of debt and a £587m pension deficit before it filed for liquidation.
KPMG, which audited Carillion since its inception in 1999, signed off Carillion’s 2016 accounts as a going concern. Months later the company issued a profit warning and its chief executive left the company.
A month after the collapse, MP Rachel Reeves chair of the BEIS select committee said: “Either KPMG failed to spot the warning signs, or its judgement was clouded by its cosy relationship with the company and the multi-million-pound fees it received.”