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KPMG settles £1.3bn Carillion creditor claim

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Big Four auditor KPMG has reached another milestone in the long-running fallout from its work at failed infrastructure group Carillion by agreeing a settlement with the official receiver.

20th Feb 2023
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“Carillion and KPMG have agreed a settlement of Carillion’s claims against KPMG concerning the audits of Carillion for the period 2014 to 2016. The parties have agreed that the terms of that settlement will remain confidential,” commented a spokesperson for the liquidator to signal the conclusion of one of the biggest ever actions against a UK corporate auditor.

Acting as liquidator following the collapse of Carillion plc and Carillion Construction Ltd, the official receiver launched a £1.3bn damages claim against KPMG last year on behalf of the group’s creditors.

Carillion had gone under in January 2018 with £29m in cash and liabilities of £7bn on its balance sheet. The government liquidators concluded that KPMG had failed to spot misstatements in the group’s accounts and missed multiple red flags that should have alerted the auditors to a “clear and obvious risk of misstatement”.

Initial investigations concluded that “no reasonably competent auditor would have signed unqualified audit opinions on the Carillion group’s 2014–16 financial statements”.

As well as backdating an audit opinion on some of Carillion’s accounts, Peter Meehan, the former KPMG partner in charge of the Carillion audit, “repeatedly accepted hospitality from and offered hospitality to Carillion and its senior management”.

The original legal action sought damages on the creditors’ behalf for £210m paid in dividends, £31m in professional fees and trading losses of more than £1bn. 

KPMG contested the claim, stressing that blame for Carillion’s failure lay solely with the company’s managers. Since no further detail has been published on the settlement, the auditor’s success at minimising the claim is a matter of speculation.

Continuing FRC investigation

The nature and quality of KPMG’s audit work at Carillion remains subject to a continuing investigation by the Financial Reporting Council (FRC). But its protestations of innocence won’t have been helped by the FRC’s finding in May last year that individual KPMG partners and managers and the firm as a whole had misled the regulator’s investigation and falsified documents relating to its audits of Carillion and Regenersis, an IT company.

The interim case against KPMG resulted in severe reprimands and a £14.4m fine for KPMG. The broader investigation into the Carillion audit work continues.

When asked for a comment on the liquidator’s suit, KPMG UK chief executive Jon Holt responded: “I am pleased that we have been able to resolve this claim. Carillion was an extreme and serious corporate failure, and it is important that we all learn the lessons from its collapse. 

“The FRC’s ongoing investigation into our work as Carillion’s auditor is an important part of that process, and we will continue to cooperate fully with it.”

Replies (7)

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By Hugo Fair
20th Feb 2023 20:04

If “no reasonably competent auditor would have signed unqualified audit opinions on the Carillion group’s 2014–16 financial statements”, then why are "further details (not being) published on the settlement" (particularly any findings with regard to culpability of all types)?

And when will the national press (let alone official bodies) ensure that a non-response like “I am pleased that we have been able to resolve this claim” generates a public backlash that demands a more honest response - containing specific planned changes with measurable outcomes?

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Replying to Hugo Fair:
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By Justin Bryant
21st Feb 2023 09:08

Nothing has changed much since the Polly Peck International scandal and everything between then and this and so I doubt much will change from this, especlly as Big 4 are too big to fail. Contrast the above KPMG settlement statement with that previously in the link below.

https://www.accountingweb.co.uk/business/finance-strategy/kpmg-faces-ps1...

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By ColA
23rd Feb 2023 09:31

Many decades ago when working as a recently qualified senior I remember well being instructed to choose another item from an audit sample to avoid ‘awkward complications’.
One of the prompts which drew me to a five-decade working life in commerce & the public sector.

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By JustAnotherUser
23rd Feb 2023 12:01

"Peter Meehan The KPMG partner who led the audit of failed outsourcer Carillion has been banned from the accounting profession for a decade for providing false and misleading information to regulators."

"Peter Meehan will also have to pay a fine of £250,000 after a Financial Reporting Council (FRC) tribunal found that he and other KPMG managers had misled the regulator using forged documents."

Will continue to happen until these things are treated as crimes and the right people see real penalties.

...Section 1 Forgery Act 1981 states: A person is guilty of forgery if he makes a false instrument, with the intention that he or another shall use it to induce somebody to accept it as genuine...

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By carnmores
23rd Feb 2023 16:49

perhaps ICAEW can tell us why the settlement is not made available to the public?

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Replying to carnmores:
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By tedbuck
28th Feb 2023 10:54

Really?

I expect they are re-decorating Moorgate Place so have more important things to do with our money.

I think they are more interested in damage limitation (a bit too late for that in my opinion) than in upsetting the big 4. Be different if it were a little firm - then it would be 'hung, drawn and quartered'.

But perhaps I am a little cynical.

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By AndrewV12
24th Feb 2023 10:46

Good article John
It must have been a nightmare preparing it, ensuring all the facts are correctly reported. Especially when an undisclosed settlement was reached, lots of rumours flying around.

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