FRC Carillion probe to continue ‘well into 2019’

The Financial Reporting Council’s (FRC) investigation into Carillion is set to continue for much of this year but will be completed ‘promptly and thoroughly’, the regulator has said in an update on its examination of KPMG’s auditing and the conduct of two former finance directors of the failed outsourcer

The FRC is investigating KPMG’s audits of Carillion (2014-2017) and the conduct of two former finance directors, Richard Adam and Zafar Khan. The investigations were launched in January and March 2018, and the regulator said the update is in response to ‘the significant public interest in this matter’.

Additionally, in November 2018, the FRC opened a further investigation relating to the provision of materials to the FRC by KPMG in connection with the FRC’s Audit Quality Review into aspects of the audit of Carillion for the year end 2016. The decision to open this investigation followed matters self reported by KPMG.

The FRC has been under pressure to act more quickly in high profile cases of corporate governance and accounting failures, after MPs were highly critical of the length of time the regulator took to launch and complete its investigation into the failure of HBOS at the height of the financial crisis.

In its update, the FRC says it continues to progress its original investigations in relation to the collapse of Carillion in conjunction with other regulators. These include the Official Receiver, the Financial Conduct Authority (FCA), the Insolvency Service and The Pensions Regulator.

A key area of focus for the FRC has been the financial performance of Carillion’s major contracts in both the construction and services divisions, and whether Carillion management and its auditors ensured that this was appropriately reported in its financial statements. The investigations are also considering conduct relating to pension liabilities, goodwill, cash disclosures and going concern.

The FRC has obtained and is analysing what it describes as ‘very significant quantities ‘of documents relating to these areas.  Detailed interviews have been conducted with audit team members and Carillion senior executives and further interviews are planned for early 2019.

The statement concludes: ‘The matters being investigated by the FRC are complex and are expected to continue well into 2019.  They are a critical stage in the process, the findings of which form the bedrock on which any regulatory proceedings are based.

‘The FRC is committed to completing its investigations promptly and thoroughly.’

Report by Pat Sweet

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