Accountancy watchdog launches probe into KPMG audit of Carillion
The Financial Reporting Council (FRC) has today opened an investigation under the Audit Enforcement Procedure in relation to KPMG’s audit of the financial statements of collapsed construction and services firm Carillion.
The accountancy watchdog said it took the step following enquiries made since a profit warning issued by Carillion in July 2017.
The investigation will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out by KPMG during 2017.
Business secretary Greg Clark announced that he “welcomed” the announcement about the FRC’s probe.
“I had written previously to the FRC asking them about this matter and trust their investigation will be conducted as quickly and thoroughly as possible,” Mr Clark said.
The FRC said the investigation will be conducted by its Enforcement Division, and will consider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors.
Several areas of KPMG’s work will be examined including the audit of the company’s use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts, and accounting for pensions.
The FRC will conduct the investigation as quickly and thoroughly as possible.
The FRC is progressing with urgent enquiries into the conduct of professional accountants within Carillion in connection with the preparation of the financial statements and other financial reporting obligations under the Accountancy Scheme.
The will see the FRC liaising closely with the Official Receiver, the Financial Conduct Authority, the Insolvency Service and The Pensions Regulator to ensure that there is a joined-up approach to the investigation of all matters arising from the collapse of Carillion.
The news comes only days after the chair of two select committees wrote to the Big Four financial services firms – KPMG, EY, PWC and Deloitte – demanding details about their relationship with Carillion.
A letter from Frank Field MP and Rachel Reeves MP said their inquiry would look to “establish what services, if any, the Big Four accountancy firms have offered Carillion, its subsidiaries and their pension scheme.”
Meanwhile, the Commons work and pensions committee has also criticised the collapsed outsourcing giant after publishing a letter from Robin Ellison, chairman of trustees of Carillion’s pension scheme, which gave an account of the firm’s pension arrangements.
It was believed that Carillion’s liquidation left a £900 million debt pile, a £590m pension deficit reported by the firm, and hundreds of millions of pounds of unfinished public contracts.
However, the Ellison letter gives an account of the last few years and suggesting they have been left with a funding shortfall of around £990m.
MPs said the letter also suggests the pension deficit could be as high as £990m.
The company has been accused of trying to “wriggle out” of its obligations to pensioners while paying out tens of millions in dividends for shareholders and “handsome pay packets” for bosses.
The letter shows that pension trustees were “kept in the dark” about the state of Carillion’s finances until late last year, the committee argues, and that dividends and bonuses were paid out at the expense of pension fund contributions.
Last year contributions to the pension funds were deferred until 2019, to help shore up the firm’s finances.