FRC seeks KPMG response to Carillion probe
22 Sep 2020
The Financial Reporting Council (FRC) has completed its initial report in connection with its extensive investigation into KPMG’s audit of the financial statements of Carillion, the outsourcing company which collapsed in January 2018
22 Sep 2020
The report was delivered at the end of August, and the Big Four firm now has eight weeks in which to respond, after which the regulator will decided whether or not to pursue enforcement proceedings.
The FRC opened its investigation two weeks after Carillion, a major government supplier, collapsed.
The regulator is examining KPMG’s auditing of Carillion for the years ended 31 December 2014, 2015 and 2016 and additional audit work carried out during 2017.
Normally its report would be completed within two years, but earlier this year the FRC indicated that the ‘scale and complexity’ of the investigation would mean it could not meet this deadline, which was extended to the summer.
It said at the time that the Carillion investigation covered all four audit years and encompasses numerous significant audit areas, including the accounting for construction and services contracts, pensions liabilities, goodwill and going concern.
The listed company, which handled the majority of public sector outsourced construction contracts, went into liquidation on 15 January 2018 as last ditch rescue talks failed when banks refused to extend further credit lines to the huge construction company, and the UK government decided against offering a loan.
The FRC’s initial investigation report (IIR) has not been published. If, after considering KPMG’s response, enforcement proceedings are pursued a decision notice will be issued outlining the breaches which the executive counsel considers to have occurred, and, where applicable, proposing appropriate sanctions to impose.
Contested proceedings are ultimately resolved by an independent tribunal following a public hearing.
A KPMG spokesman said: ‘We believe it is important that regulators acting in the public interest review the audit work related to high profile cases such as Carillion and we are cooperating fully with the FRC’s investigation.
‘We can confirm we have received the initial investigation report, but because the regulatory process is ongoing we cannot comment further.’
The liquidation of Carillion is estimated to have cost UK taxpayers £148m according to the National Audit Office (NAO).