KPMG boss says he ‘cannot defend’ Carillion audits after record £21m fine

The FRC said that KPMG’s audits of the business had failed to adhere to “the most basic and fundamental audit concepts”. It levelled a total fine of £21m on the business, reduced from £30m due to cooperation.

This is on top of a £14.4m penalty which KPMG was handed last year for handing over misleading information to the regulator. The business will also pay legal costs of around £5.3m. The watchdog fined two of KPMG’s former auditors a combined £420,000, and banned one of them from membership of the Institute of Chartered Accountants in England and Wales for a decade. Before collapsing in January 2018 Carillion had been one of the UK’s biggest construction and facilities management companies, with several major Government contracts. KPMG audited its books between 2014 and 2016, saying each time that without qualifications the financial statements were true and fair.

But in examining KPMG’s work, the FRC found “an unusually large number of breaches”, it said on Thursday. For three years before it collapsed therefore Carillion was not subject to reliable audits. The 2016 audit was particularly bad and “seriously deficient”, the FRC said.

It said that KPMG and its partner Peter Meehan did not respond to “numerous indicators” that Carillion’s core operations were loss-making and its cash flows were supported by “short term and unsustainable measures”. The auditors did not show “an adequate degree of professional scepticism” and did not properly scrutinise what Carillion bosses told them, when their estimates appeared unreasonable. They also signed off the 2016 audit report even though it would be another six weeks until some of the audit work would be completed.

KPMG UK’s chief executive Jon Holt said: “These findings are damning. We have co-operated fully with the investigation, and we accept its conclusions and the sanctions that have been imposed without reservation. I am very sorry that these failings happened in our firm.

“It is clear to me that our audit work on Carillion was very bad, over an extended period. In many areas, some of our former partners and employees simply didn’t do their job properly.

“Junior colleagues were badly let down by those who should have set them a clear example, and I am upset and angry that this happened at our firm. Since this audit work was undertaken, we have done an enormous amount to improve controls and oversight across our firm, to ensure that these failings could not take place today. But ultimately it still falls to each of us, individually, to hold ourselves and each other to the highest professional standards every day.”