FRC probing Carillion auditor KPMG over possible accounting breaches

KPMG's audit of Carillion accounts for the last four years will be investigated by the Financial Reporting Council, it said on Monday, after the collapse of the government contractor sparked concerns.

Following enquiries made since Carillion's profit warning in July 2017, the FRC said it had decided to open an investigation under the 'audit enforcement procedure' to cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017.

The FRC’s enforcement division will consider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors.

Carillion was signed off by KPMG as a going concern in the spring of last year before issuing three back-to-back profit warnings later that year before crashing into liquidation with a reported £5bn of liabilities and just £29m left in cash less earlier this month.

"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 agency said, adding that it was also 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 FRC, which said its investigation will be conducted "as quickly and thoroughly as possible", is not the only body probing the auditor's role, with parliament's influential Business and Work and Pensions committee last week announcing that it has called on KPMG in for a grilling on January 30.

The FRC is liaising with the Official Receiver, which was appointed on Monday 15 January when the FTSE 250 group was placed in compulsory insolvency, together with the Financial Conduct Authority, the Insolvency Service and The Pensions Regulator.

Frank Field, who will co-chair the Business and Work and Pensions committee's inquiry, last week said: "The particularly nasty twist in this now grimly familiar tale is the mountain of debt and giant pension deficit this public services contractor leaves in the wreckage of its collapse – with an accompanying massive hit to the public purse."

"It must also be time now for the auditors who cosily signed off this disaster-in-the-making as a 'going concern' less than a year ago to begin to account for themselves."