KPMG under second investigation over Carillion’s collapse

Carillion’s collapse has angered lawmakers who called on the FRC to consider breaking up the “Big Four” accountants in order to increase competition and audit quality.

On Tuesday, Britain, financial watchdog, the Financial Reporting Council (FRC) stated, it has opened a second investigation into how KPMG audited the books of accounts of Carillion, a UK construction company which has collapsed.

The audit for that year was one of 160 company audits in the FRC’s routine annual quality review.

KPMG said it was reviewing its response to the FRC’s quality review of Carillion’s 2016 audit after concerns were identified in connection with a small number of documents provided to the FRC.

“On discovery of this information, we immediately reported our findings to the FRC,” said KPMG.

In its statement KPMG said, it stood by the “conclusions” it arrived at for Carillion’s audit for that financial year and that it has yet to reach a conclusion regarding individual responsibility.

KPMG has engaged outside counsel to investigate the circumstances of the quality review and the conduct of individuals involved.

In 2018, the FRC stated it was investigating KPMG’s audits of Carillion for the 2014-2017 period, it was also investigating the conduct of two former finance directors, Zafar Khan and Richard Adam.

The second investigation was opened in November and made public on Tuesday.

“The FRC continues to progress its original investigations in relation to the collapse of Carillion in conjunction with other regulators,” said FRC in a statement. “A key area of focus has been the financial performance of Carillion’s major contracts in both the construction and services divisions, and whether Carillion management and its auditors ensured that this was appropriately reported in its financial statements.”

“The investigations are also considering conduct relating to pension liabilities, goodwill, cash disclosures and going concern,” said the FRC.

Carillion’s collapse has angered lawmakers who called on the FRC to consider breaking up the “Big Four” accountants in order to increase competition and audit quality.

Lawmakers have also raised concerns regarding FRC’s ability to police accounting firms effectively and quickly.

In December 2018, two government-sponsored reports recommended replacing the FRC with a new watchdog; they also recommended forcing large, listed companies to hire two auditors.

The FRC said it was committed to completing its investigations promptly and thoroughly.

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