The FRC will conduct the investigation as quickly and thoroughly as possible. However, most stakeholders have raised concerns to whether the warnings of such a prominent player in in infrastructure development should have been under the magnifying glass of the FRC before it all collapsed.
The FRC has now decided, following enquiries made since a profit warning in July 2017, to open an investigation under the Audit Enforcement Procedure in relation to KPMG’s audit of the financial statements of Carillion plc. The investigation will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017.
Many have criticised the auditor KPMG which failed to detect and make the wider stakeholder aware of the issues which led to the collapse of its client. It is reported in the accounts of Carillion that KMPG earned fees reaching almost £30m. It is one of the primary duties of an auditor to detect and report on any matters which may lead to the client not being able to carry out “business as usual” for the foreseeable future. The reporting of going concern is enshrined in the rules in which the auditor then must sign off its clients with a clean bill-of-health.
FRC will consider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors. Several areas of KPMG’s work will be examined including the audit of the company’s use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts, and accounting for pensions.
The FRC is progressing with urgent enquiries into the conduct of professional accountants within Carillion in connection with the preparation of the financial statements and other financial reporting obligations under the Accountancy Scheme.
The FRC is liaising closely with the Official Receiver, the Financial Conduct Authority, the Insolvency Service and The Pensions Regulator to ensure that there is a joined-up approach to the investigation of all matters arising from the collapse of Carillion.