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Watchdog finds potential breaches by KPMG in Carillion audit

Michael O'Dwyer
·2-min read
KPMG offices stand in 15 Canada Square, Canary Wharf
KPMG offices stand in 15 Canada Square, Canary Wharf

The accounting watchdog has delivered a long-awaited report setting out possible breaches of professional standards by KPMG in its audit of collapsed government contractor Carillion

The Financial Reporting Council (FRC) said it sent its initial investigation report to KPMG on Aug 28 following its investigation into the firm’s audit of Carillion’s accounts in 2014, 2015 and 2016, along with additional work during 2017. 

The probe was opened in January 2018, two weeks after Carillion fell into liquidation, and would normally be completed within two years. 

However, the watchdog said in January that it would miss its self-imposed deadline for delivering the initial report because of the size and complexity of the investigation. 

Carillion’s collapse sparked calls for a shakeup of the Big Four auditors after a string of high-profile failures. 

The firms are preparing to ringfence their audit practices from their other units following a series of reports on improving audit quality. 

Audit quality scores
Audit quality scores

The investigation covered a range of accounting issues, including in relation to Carillion's construction and services contracts and its ability to continue operating.

KPMG has eight weeks to respond to the report, which has not been published, after which the regulator will reach a final decision. 

Should it conclude that KPMG breached professional standards, the firm must choose whether to co-operate with the FRC, which could result in a reduced fine, or contest the findings before an independent tribunal. 

KPMG’s Big Four rival Deloitte received a record £15m fine and £5.6m of costs last week after a tribunal found “serious and serial failures” in its audit of former FTSE 100 software firm Autonomy.

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.”