KPMG’s Carillion auditor suspended, second FRC probe starts

KPMG has suspended the partner responsible for Carillion, as Financial Reporting Council (FRC) investigations into the auditing of the stricken construction giant rumble on.

The auditing watchdog is probing KPMG’s audits into Carillion between 2014-17 and has announced a further investigation into the "provision of materials to the FRC by KPMG in connection with the FRC’s Audit Quality Review into aspects of the audit of Carillion for the year end 2016".

The FRC, which is also examining the conduct of former Carillion directors Richard Adam and Zafar Khan, expects its review to run "well into 2019".

The decision to extend the scope of the FRC investigations relates to matters self-reported by KPMG and is thought to be linked to the suspension of Peter Meehan, its audit partner for Carillion, and three other staff members.

Meehan signed off Carillion’s accounts four months before the failed contractor issued a profit warning in July 2017 and revealed an £845m write-down in the value of its contracts.

The focus of FRC’s investigations are on 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.

The FRC said it is analysing “very significant quantities of documents” and has already held interviews with audit team members and Carillion senior executives, with more planned for early 2019.

Critical stage

In a statement, it said: “The matters being investigated by the FRC are complex and are expected to continue well into 2019.  They are a critical stage in the process, the findings of which form the bedrock on which any regulatory proceedings are based. The FRC is committed to completing its investigations promptly and thoroughly.”

The FRC launched its original investigations in January and March 2018.

KPMG confirmed Meehan’s suspension to CM’s sister publication Global Construction Review (GCR). A spokesperson said: “Over the past year, we have been performing a thorough review of the firm’s audit of Carillion. Our investigation included the audit team’s response to the FRC’s AQR undertaken during 2017, which looked at aspects of the 2016 audit.

“Concerns were identified in connection with a small number of documents provided to the FRC’s team during the routine AQR. On discovery of this information, we immediately reported our findings to the FRC.

“It is important to note that this took place after the signing of the audit opinion and we have not identified any evidence or indication that it had any impact on the audit conclusions of Carillion.

“We are taking this matter extremely seriously and have engaged outside legal counsel to conduct an independent investigation into the circumstances of the AQR and the conduct of the individuals involved.

“We acted swiftly and decisively and will continue to take all necessary steps to deal with this, including cooperating fully with the FRC.”