KPMG handed record fine over Carillion audits

KPMG and two of its former partners have been hit with fines totalling £30m by the UK’s accounting watchdog after its investigation into the audits of doomed contractor Carillion. 

The financial sanction, which was reduced to around £21m due to co-operation and admissions, is the highest ever imposed by the Financial Reporting Council (FRC). 

Carillion had been the UK’s second biggest contractor and was working on 420 public sector contracts when it went bust in January 2018.  

Elizabeth Barrett, executive counsel of the FRC, said: “The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit.  

“This is reflected in the financial sanction imposed on KPMG LLP, the highest ever imposed by the FRC. 

“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.” 

The FRC announced this morning that it had issued two final settlement decision notices and imposed sanctions against KPMG LLP, KPMG Audit Plc and two former audit partners, following the conclusion of its investigations into the audits of Carillion. 

Sanctions were imposed against KPMG LLP and former partner Peter Meehan under the first decision notice, which relates to the statutory audit of Carillion’s financial statements for 2014, 2015 and 2016 and additional audit work in 2017. 

KPMG LLP received a £26.5m fine, reduced to £18.6m to reflect its co-operation and admissions, and was ordered to take remedial action to prevent future breaches. It will also pay for the cost of the FRC’s investigations, which amount to £5.3m. 

Meehan was fined £350,000, reduced from £500,000, and excluded from membership of the Institute of Chartered Accountants in England and Wales (ICAEW) for 10 years – to run concurrently with a ban was already handed in other proceedings. 

The second decision notice relates to the audit of certain transactions relating to the firm’s 2013 results, with sanctions imposed against KPMG Audit Plc and Darren Turner, another former partner. 

KPMG Audit Plc’s fine was £2.5m and Turner’s £70,000, reduced from £3.5m and £100,000, respectively, for co-operation and admissions.