KPMG: Audit giant handed record fine over failures on Carillion collapse
KPMG has been slapped with a record fine over its botched auditing of Carillion, the construction company that went spectacularly bust in 2018.
The Big Four auditor has been fined a total of £30m, reduced to £20.9m after co-operating with the Financial Reporting Council’s (FRC) investigation.
The regulator said that Carillion, which went under with debts of almost £7 billion, was an important client of KPMG and the audit firm failed to adopt a “rigorous and robust approach.”
KPMG also had to stump up £5.3m for the costs of two investigations by the FRC’s executive counsel.
And two senior KPMG employees were also sanctioned by the FRC.
Peter Meehan, a former partner, was fined £500,000, reduced to £350,000 to reflect his co-operation and admissions. He has also been banned from the accountancy profession for 10 years.
Another partner, Darren Turner, was fined £100,000, reduced to £70,000 to reflect his co-operation.
The fine brings some closure on an auditing scandal which has rocked the profession, even leading to plans for a new auditing watchdog.
The FRC said their investigations had uncovered an “unusually large” number of breaches of regulatory requirements in KPMG’s audit of the construction firm.
“The breaches… all contributed to the outcome that this very large public company, which had multiple large contracts with public authorities, was not subject to rigorous, comprehensive, and reliable audits in the three years leading up to its demise,” the FRC said.
The collapse of Carillion cost taxpayers around £150m, with the firm operating a number of UK government contracts.
Elizabeth Barrett, the FRC’s executive counsel, said of KPMG’s work: “Many of the breaches involve failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain sufficient appropriate audit evidence.
“The breaches in relation to the 2016 audit even include failing to ensure that the audit process itself was properly managed and that the audit file was a reliable record. These requirements lie at the heart of proper auditing,” she continued.
“The seriousness of the failings in the 2016 audit is compounded by the breaches of the Ethical Standards relating to the fundamental principles of objectivity, independence, and integrity.”
She said the record fine reflected the deficiencies of KPMG’s audit.
Jon Holt, chief executive and senior partner of KPMG in the UK, said: “These findings are damning. We have cooperated 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.
“As an auditor, I simply cannot defend the work that we did on Carillion. As the chief executive of KPMG, I am determined that we face up to this failure, and I am absolutely committed to continuing to work with my colleagues across the business to ensure that nothing like this can happen again.”
“The seriousness of the failings in the 2016 audit is compounded by the breaches of the Ethical Standards relating to the fundamental principles of objectivity, independence, and integrity.”
Elizabeth Barrett, FRC