FRC will investigate work carried out in run-up to government outsourcer’s
collapse
The probe marks the third inquiry into management and accounting practices at Carillion © Reuters
Gill Plimmer and Naomi Rovnick in London
YESTERDAY
KPMG, the Big Four accounting firm, is being investigated by the UK industry
watchdog over its auditing of accounts at the collapsed government outsourcer
Carillion.
The Financial Reporting Council said the investigation would “consider
whether the auditor has breached any relevant requirements, in particular the
ethical and technical standards for auditors”. It said it would conduct the
investigation, which will cover 2014 to 2016, and additional audit work carried
out during 2017, “as quickly and thoroughly as possible”.
KPMG has audited Carillion since 1999 and signed off on its accounts last
March — four months before the business issued a catastrophic profit warning
triggered by an £845m writedown and nine months before the company
collapsed. The accountant said it believed it had conducted its role as Carillion’s
auditor “appropriately and responsibly” but would co-operate fully with the
FRC’s investigation.
The inquiry marks the third into accounting and management practices at
Carillion, which was liquidated earlier this month holding just £29m cash and
more than £1.5bn of debt, leaving creditors and pensioners with steep losses,
and putting thousands of jobs at risk.
The Financial Conduct Authority, which does not cover auditing in its remit, is
already investigating the financial statements Carillion issued in the run-up to
its shock profit warning last July. Meanwhile Greg Clark, business secretary,
has asked the government’s Insolvency Service to fast-track an investigation
into the conduct of Carillion’s directors.
As well as KPMG, accountancy firms EY, PwC and Deloitte have been
requested by two select committees to provide detailed accounts of all services
provided to the construction company and the fees received over the past 10
years.
A parliamentary paper last week accused Carillion of ramping up debt to pay
dividends. “When dividends are paid on the basis of expected profits, the
company is effectively borrowing money to pay its shareholders,” the briefing
paper said.
On Monday, the group was also accused by the Work and Pensions Select
Committee of trying to “wriggle out” of its pension funding obligations. Robin
Ellison, the chair of Carillion’s defined benefit pension scheme, is due to appear
at the business, energy and industrial strategy committee of MPs on Tuesday
morning.
Carillion employed about 19,000 people in the UK and had contracts including
building the HS2 rail link and serving 32,000 school meals a day. The first
admission of its troubles came in last July’s profit warning, which also revealed
a sharp increase in debt and caused chief executive Richard Howson to quit.
This was followed by two more profit warnings last September and November.
The FRC said it would examine “several areas of KPMG’s work” for Carillion,
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 has powers to hit accounting firms with unlimited fines if it
establishes wrongdoing but has been criticised in the past for inactivity.
Last year it came under fire from MPs for clearing KPMG of misconduct in its
audit of British lender HBOS, which collapsed in 2008.
The FRC said it was too slow to investigate KPMG’s work for HBOS and said
it needed extra regulatory powers.
The FRC also announced last September that it planned to publish a register of
interests detailing the links between its senior executives and the companies it
oversees in an attempt to address concerns about its independence.
FRC will investigate work carried out in run-up to government outsourcer’s
collapse
The probe marks the third inquiry into management and accounting practices at Carillion © Reuters
Gill Plimmer and Naomi Rovnick in London
YESTERDAY
KPMG, the Big Four accounting firm, is being investigated by the UK industry
watchdog over its auditing of accounts at the collapsed government outsourcer
Carillion.
The Financial Reporting Council said the investigation would “consider
whether the auditor has breached any relevant requirements, in particular the
ethical and technical standards for auditors”. It said it would conduct the
investigation, which will cover 2014 to 2016, and additional audit work carried
out during 2017, “as quickly and thoroughly as possible”.
KPMG has audited Carillion since 1999 and signed off on its accounts last
March — four months before the business issued a catastrophic profit warning
triggered by an £845m writedown and nine months before the company
collapsed. The accountant said it believed it had conducted its role as Carillion’s
auditor “appropriately and responsibly” but would co-operate fully with the
FRC’s investigation.
The inquiry marks the third into accounting and management practices at
Carillion, which was liquidated earlier this month holding just £29m cash and
more than £1.5bn of debt, leaving creditors and pensioners with steep losses,
and putting thousands of jobs at risk.
The Financial Conduct Authority, which does not cover auditing in its remit, is
already investigating the financial statements Carillion issued in the run-up to
its shock profit warning last July. Meanwhile Greg Clark, business secretary,
has asked the government’s Insolvency Service to fast-track an investigation
into the conduct of Carillion’s directors.
As well as KPMG, accountancy firms EY, PwC and Deloitte have been
requested by two select committees to provide detailed accounts of all services
provided to the construction company and the fees received over the past 10
years.
A parliamentary paper last week accused Carillion of ramping up debt to pay
dividends. “When dividends are paid on the basis of expected profits, the
company is effectively borrowing money to pay its shareholders,” the briefing
paper said.
On Monday, the group was also accused by the Work and Pensions Select
Committee of trying to “wriggle out” of its pension funding obligations. Robin
Ellison, the chair of Carillion’s defined benefit pension scheme, is due to appear
at the business, energy and industrial strategy committee of MPs on Tuesday
morning.
Carillion employed about 19,000 people in the UK and had contracts including
building the HS2 rail link and serving 32,000 school meals a day. The first
admission of its troubles came in last July’s profit warning, which also revealed
a sharp increase in debt and caused chief executive Richard Howson to quit.
This was followed by two more profit warnings last September and November.
The FRC said it would examine “several areas of KPMG’s work” for Carillion,
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 has powers to hit accounting firms with unlimited fines if it
establishes wrongdoing but has been criticised in the past for inactivity.
Last year it came under fire from MPs for clearing KPMG of misconduct in its
audit of British lender HBOS, which collapsed in 2008.
The FRC said it was too slow to investigate KPMG’s work for HBOS and said
it needed extra regulatory powers.
The FRC also announced last September that it planned to publish a register of
interests detailing the links between its senior executives and the companies it
oversees in an attempt to address concerns about its independence.
