KPMG has suspended Peter Meehan, the audit partner for failed outsourcing company Carillion, and three other members of staff after discovering issues with documentation provided to the Financial Reporting Council’s (FRC’s) audit quality review (AQR) of the company in 2017
A KPMG spokesperson said: ‘Over the past year, we have been performing a thorough review of the firm’s audit of Carillion. Our investigation included the audit team’s response to the FRC’s AQR undertaken during 2017, which looked at aspects of the 2016 audit.
‘Concerns were identified in connection with a small number of documents provided to the FRC’s team during the routine AQR. On discovery of this information, we immediately reported our findings to the FRC.
‘It is important to note that this took place after the signing of the audit opinion and we have not identified any evidence or indication that it had any impact on the audit conclusions of Carillion.
‘We are taking this matter extremely seriously and have engaged outside legal counsel to conduct an independent investigation into the circumstances of the AQR and the conduct of the individuals involved.
‘We acted swiftly and decisively and will continue to take all necessary steps to deal with this, including cooperating fully with the FRC.’
Carillion, which had substantial government contracts, collapsed a year ago, putting major projects and thousands of jobs at risk. KPMG was paid £29m to audit Carillion for 19 years. The firm signed off Carillion’s accounts four months before the construction giant issued a profit warning, triggered by an £845m writedown in the value of its contracts, and under a year before it collapsed.
During a subsequent joint work and pensions and business, energy and industrial strategy (BEIS) select committee inquiry into the events surrounding Carillion’s failure, Meehan came under heavy pressure to explain why KPMG did not highlight potential difficulties with some contracts where there were substantial cost or time overruns.
At the time, Meehan told MPs: ‘All the contracts were complex in nature, and as such there were a wide range of judgments and estimates involved, and there’s a wide range of acceptable answers, and there is no right answer in terms of those judgments and estimates and contracts.’
Peter Kyle, a Labour MP, said: ‘I would not hire you to do an audit of the contents of my fridge, because when I read it, I would not know what was actually in my fridge or not. And that’s the point of auditing, isn’t it? To tell us what actually exists and what’s robust or not.’
In a statement the FRC said: ‘In January 2018 we announced an investigation into the audit of the financial statements of Carillion plc for the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017. This is a substantial investigation which is ongoing.
‘We confirm we have been approached by KPMG who have provided us with further materials in connection with the FRC’s review of aspects of the 2016 audit of Carillion. We are also investigating this matter.’
Report by Pat Sweet