KPMG could do without a court case over its audits of Carillion, the collapsed outsourcing group. It has only just been fined £5m by the regulator for its work at BNY Mellon, having already paid a £5m penalty for insufficient scepticism in its audit of Co-op Bank, and a £6m sanction for failings in its audit of insurer Equity Red Star — taking its total to £20m in a year, or more than the entire industry paid in 2018. And that 2018 figure was inflated by two other KPMG audit fines. Its lawyers must be exhausted. Or retired to the Bahamas. But the biggest reason the accountancy firm will not want to be cross-examined about audit is that it has witnessed a dress rehearsal. Which did not go well.

In January, a parliamentary committee grilled the bosses of UK audit firms, some of whom touched on the two defences KPMG might have to use if, as expected, Carillion’s liquidator pursues a case against it.

First, that KPMG’s auditors did everything that the rules require. Grant Thornton boss David Dunckley attempted this line of defence when MPs probed his firm’s audit of scandal-hit café chain Patisserie Valerie, saying: “We are not giving a statement that the accounts are correct . . . We are saying they are reasonable.” But it was undermined by Jac Berry of Mazars admitting: “What the public expect is to be able to rely on a set of accounts.”

Second, that KPMG’s auditors were meant to be watchdogs, not bloodhounds. Mr Dunckley used this defence, too, saying: “We are not looking for fraud.” Only for Scott Knight of BDO to suggest otherwise: “You look for material frauds”. 

With both defences open to question, KPMG is likely to want to settle out of court — even if it previously said it carried out its role at Carillion “appropriately and responsibly” and is yet to comment on the potential lawsuit. It needs to limit the impact on its reputation and finances. However, while that may make sense for KPMG, it would not serve the public interest. A Carillion court case could actually expose the ongoing flaws in accounting rules and auditors’ roles.

Accounting rules do not stop auditors signing off on numbers divorced from reality. They allowed Carillion to treat £1.6bn of goodwill from acquisitions as permanent assets — 35 per cent of its total — and not write down any of the value despite signs the businesses were struggling. One, Eaga, had its goodwill valued at an unchanged £329m even as losses mounted and it was only kept solvent by Carillion’s financial support. 

Auditors’ roles still do not include challenging a company more strongly on its ability to continue operating — new proposals are only being worked on. Nor are auditors’ roles any more separate from their employers’ consulting arms, which can earn big fees from audit clients — again, removing these conflicts are still only proposals.

KPMG’s managers might not want their day in court. But everyone still shocked by Carillion’s collapse arguably needs one.

Just Eat: how tasty? 

Some takeaway food combinations just seem to work, others don’t. Pineapple on a pizza is apparently a dream topping, if the people of Hawaii are to be believed. Broccoli on a pizza is a nightmare, if the Disney/Pixar film Inside Out is any guide. But how palatable is a combination of takeaway delivery groups? 

Just Eat and Takeaway.com see their proposed merger as more fruity than vegetabley, judging by the deal terms published on Monday. A “limited number of overlapping markets” was deemed a positive that brings together separate “profit pools” — even though it offers no obvious way deepen the pools other than cross-investing the cash flows of the two entities. Synergies of “approximately €20m (£18m) by the fourth anniversary of the completion” were somehow described as a “benefit” to a combined group that already has €1.24bn of revenue.

Takeaway.com does at least bring a successful recipe and a renowned chef. Over the past 20 years under founder Jitse Groen, it has become a near £5bn company with 14m customers and a share price that has trebled since listing in 2016. It also brings experience of online platform integration.

However, if the deal is being done mainly to recruit a better boss with IT knowhow — the rationale put forward by activist investor Cat Rock — then there is a more broccoli-flavoured comparison. Or perhaps Vinho Verde-tinged. Four years ago, retailer Majestic Wine acquired Naked Wines essentially to gain the marketing skills and online capabilities of its founder Rowan Gormley. Last week, Majestic was sold for just £95m after a lack of synergies and transferable skills failed to deliver growth. 

Just Eat, by contrast, is a fast growing business with clear potential. Still, the market clearly thought there might have been tastier, more synergistic combinations. Last week, analysts suggested Naspers, Uber Eats and Deliveroo, And Just Eat shares traded above the Takeway.com offer price. Now, they are trading in-line. Are investors losing their appetite? 

matthew.vincent@ft.com

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