Financial Services

KPMG UK accused of misleading regulator over Carillion audit

UK Financial Reporting Council makes formal complaint against accounting firm

A KPMG office in London. Photograph: iStock

Michael O'Dwyer
Wed Sep 1 2021 - 20:00

KPMG in the UK will face a disciplinary tribunal over allegations that it provided false or misleading information to the British accounting regulator regarding its audits of Carillion and another outsourcer.

The Financial Reporting Council (FRC) announced a formal complaint against the accounting firm and several individuals there, including former partner Peter Meehan, who led KPMG’s audits of Carillion.

The regulator alleged that KPMG provided false or misleading information or documents in connection with its routine quality inspections of the audits of Carillion for the financial year ending December 2016 and of Regenersis, another outsourcer, for the year ending June 2014.

The FRC’s complaint did not allege that KPMG or its staff committed misconduct during the audits or that the financial statements of Carillion or Regenersis, a London-listed IT company that later renamed itself Blancco Technology Group, were not properly prepared.

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Possible failings in the audits of Carillion’s financial statements are the subject of two other FRC investigations, whose results are yet to be announced. Carillion’s liquidators are preparing a separate £250 million negligence claim against KPMG.

Carillion paid KPMG £29 million for its work for almost two decades before the outsourcer collapsed in January 2018. It had liabilities of £7 billion and just £29 million of cash when it was placed into liquidation, fuelling debate over how the UK audit sector and boardroom regulation could be reformed to make them more effective.

The regulator’s complaint, announced on Wednesday, relates to information supplied by KPMG to FRC inspectors during the watchdog’s annual retrospective checks on a random sample of audits.

In 2018, KPMG discovered potential problems with the information provided to the FRC by its auditors. It suspended Meehan, who left the firm in January 2021, and three others after concerns were raised that documents provided to the watchdog had been backdated.

Following the discovery, the Big Four firm called in lawyers from Linklaters, who found similar issues with the information supplied to the FRC relating to the Regenersis audit.

The FRC’s complaint also named Stuart Smith, the KPMG employee who led the Regenersis audit and is currently suspended by the firm.

Lawyers for Meehan and Smith did not immediately respond to requests for comment.

Disciplinary tribunal

A decision by the FRC to proceed with a formal complaint and a tribunal hearing indicated that it could not reach a settlement with the firm or individuals accused of wrongdoing. The case is scheduled to be heard by a disciplinary tribunal in January 2022.

KPMG said it was taking the matter “extremely seriously”.

“We discovered the alleged issues in 2018 and 2019, and on both occasions immediately reported them to the FRC and suspended the small number of people involved,” it said.

“The allegations in the formal complaint would, if proven, represent very serious breaches of our processes and values. We have co-operated fully with our regulator throughout their investigation.”

The complaint is the latest in a long line of legal and regulatory problems facing KPMG, which was pitched into chaos in February when its UK chair and senior partner Bill Michael resigned after telling staff to “stop moaning” about their working conditions during the pandemic.

KPMG was singled out by the FRC in July for the “unacceptable” quality of its audits of large companies.

It is also under investigation over its audits of Rolls-Royce and Conviviality, the owner of Bargain Booze, which went into administration in 2018.

It was also fined £13 million last month for serious misconduct in its advice on the sale of mattress company Silentnight to a private-equity fund which it was nurturing as a client. – Copyright The Financial Times Limited 2021

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