KPMG audited Carillion’s accounts the financial years 2014, 2015, and 2016 and each time signed them off as lawful and fair. In July and September 2017 Carillion announced expected provisions totalling £1.045 billion, primarily arising from expected losses on a series of its contracts, and a goodwill impairment charge of £134m. In January 2018 Carillion went into liquidation, turning into UK constructing’s greatest ever corporate collapse.
Financial Reporting Council executive counsel Elizabeth Barrett said: “The credibility of experiences and opinions issued by auditors in reference to financial statements depends upon on beliefs relating the integrity, objectivity and independence of auditors and the quality of the audit work performed.
“The number, range, and seriousness of the deficiencies in the audits of Carillion all thru the duration leading up to its failure was exceptional and undermined that credibility and the general public have confidence in audit. Here is reflected in the financial sanction imposed on KPMG LLP, the perfect ever imposed by the FRC.
“Many of the breaches contain failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain satisfactory appropriate audit proof. The breaches in relation to the 2016 audit even include failing to make optimistic that that the audit job itself was effectively managed and that the audit file was a reliable record. These requirements lie at the heart of honest auditing.
“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.”
Jon Holt, chief executive and senior partner of KPMG in the UK, said: “It is clear to me that our audit work on Carillion was very bad, over an extended duration… Since this audit work was undertaken, we have performed an colossal amount to make stronger controls and oversight across our firm, to make optimistic that that these failings may no longer take place today.”
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