KPMG hit with record £21m fine over Carillion audit failures

The UK accounting watchdog imposed a total £30m penalty –  reduced by 30% to around £21m after co-operation and admissions were taken into account.

Elizabeth Barrett, Executive Counsel of the Financial Reporting Council 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 the credibility and the public trust in audit.

“This is reflected in the financial sanction imposed on KPMG, 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.”

Jon Holt, chief executive and senior partner of KPMG in the UK, described the FRC’s findings as “damning” and added that he “simply cannot defend the work that we did on Carillion”.

He said: “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.”

The probe highlighted that prior to Carillion going into liquidation in January 2018, KPMG audited financial statements for 2014, 2015, and 2016.

In each of these years, KPMG provided an unqualified audit opinion that the financial statements gave a true and fair view of Carillion’s affairs.

The mismatch was particularly highlighted in the audit of 2016, signed-off on 1 March 2017.

Just a few months later in July and September 2017, Carillion sent a shockwave through stakeholders suddenly revealing a £1.045bn blackhole, primarily arising from expected losses on several major contracts, and a goodwill impairment charge of £134m.

The FRC imposed sanctions against KPMG, KPMG Audit, and two former audit partners following its 5-year long probe into the audits of Carillion prior to its sudden collapse.

KPMG will also pay £5.3m in costs.

Sanctions breakdown

The first sanction relates to the investigation opened on 26 January 2018 into the statutory audit of Carillion financial statements for the financial years ended 31 December 2014, 2015, and 2016, and additional audit work in 2017.

Decision notice 1

KPMG LLP

A £26.5m fine, reduced by 30% to £18.55m to reflect the firm’s co-operation and admissions;
An order requiring the account to take remedial action aimed at preventing recurrence of the breaches

Peter Meehan, former partner of KPMG

£500,000 fine reduced by 30% to £350,000 to reflect Meehan’s co-operation and admissions
Exclusion from membership of the ICAEW for 10 years.

The second sanction related to Carillion’s reported profit for 2013

Decision notice 2

KPMG Audit Plc

A  £3.5m fine, reduced by 30% to £2.45m to reflect the firm’s co-operation and admissions

Darren Turner, former partner of KPMG

A £100,000 fine reduced by 30% to £70,000 to reflect Turner’s co-operation and admissions

>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : ConstructionEnquirer – https://www.constructionenquirer.com/2023/10/12/kpmg-hit-with-record-21m-fine-over-carillion-audit-failures/