Defined Benefit  

KPMG faces investigation over Carillion collapse

KPMG faces investigation over Carillion collapse

The Financial Reporting Council (FRC) is conducting an investigation into KPMG's audit of the financial statements of Carillion.

According to a market statement issued today (29 January), the accounting watchdog's probe "will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017".

The defined benefit (DB) pension schemes of Carillion, one of the UK government's biggest contractors, are all either in the retirement fund of last resort, the Pension Protection Fund (PPF), or will soon enter it.

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After unsuccessful talks with its lenders and the UK government, Carillion made an application on 15 January to the High Court for compulsory liquidation.

Carillion, which employs about 43,000 people, has been struggling for several months, issuing a profit warning last year that sank its share price – which has fallen from more than £2 a year ago to about 14.2p just before it went into administration.

KPMG signed off the accounts of the contractor in March 2017.

The investigation will be conducted by the FRC's 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 watchdog said.

A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.

In a previous statement, a spokesperson at KPMG said: "We believe that we conducted our role as Carillion's auditor appropriately and responsibly.

"We issued our last audit opinion on 1 March 2017 in respect of the financial statements for the year ended 31 December 2016.

"In agreement with Carillion, in June 2017 we accelerated some of our audit procedures in relation to underperforming construction contracts.

"We issued our standard interim review opinion on Carillion's half-year results on 29 September 2017 and at the date of liquidation were carrying out our final audit work."

KPMG's spokesperson also said that the company will "cooperate fully with any enquiries that the FRC or other regulatory agencies may make."

The accounting watchdog is 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," it said.

In the meantime, MPs from the work and pensions committee and the business, energy and industrial strategy (BEIS) committees have jointly written to the Big Four financial services firms - KPMG, EY, PWC and Deloitte – demanding details about their relationship with the collapsed outsourcing giant.

The committees launched a joint inquiry into the company's collapse last week.

maria.espadinha@ft.com