KPMG faces potential misconduct fine over Carillion audit

By Huw Jones

LONDON (Reuters) - KPMG faces a potential fine next week after admitting it misled regulators during spot checks on its audits of construction firm Carillion and software company Regenersis, in a case the "Big Four" auditor described as disturbing.

The case arose after KPMG self-reported findings from an internal investigation to the Financial Reporting Council (FRC), which regulates auditing in Britain. The FRC said on Friday that a hearing on its complaint against KPMG and former employees will resume before a disciplinary tribunal on May 12 and 13.

KPMG admitted at an initial hearing in January to misconduct, which its UK chief executive Jon Holt said was disturbing and upsetting.

The case is separate from the FRC's investigation into KPMG's audit of Carillion, whose collapse led to recommendations of a sector shake-up, although legislation has yet to be brought before parliament on the proposed reforms.

Five former employees of KPMG involved in the two audits contested misconduct allegations made by the FRC at the January hearing. A sixth former employee settled just before it began.

FRC counsel Mark Ellison told the January hearing that the former KPMG employees "forged" and "manufactured" missing documents after questions from the FRC during spot checks.

The five former employees will hear next week if the allegations against them have been upheld by the tribunal and, if so, what sanctions the FRC is seeking. Sanctions need the tribunal's endorsement.

KPMG had no further comment on Friday.

(Reporting by Huw Jones; Editing by Alexander Smith)