The audit watchdog has delayed a decision on whether to bring enforcement action against KPMG over its work on collapsed outsourcing giant Carillion, citing an exceptionally large and complicated investigation.
The Financial Reporting Council said it would miss a self-imposed deadline to complete its probe into audit work carried out by KPMG, which was initially due this month. It will instead make a decision on whether to bring disciplinary proceedings against KPMG, which could include a hefty fine, this summer.
“The scale and complexity of this case is exceptional, with a huge volume of documents and information that has had to be reviewed and analysed,” the FRC said in an update on Friday.
The regulator is looking into audit work by KPMG carried out for Carillion between 2013 and 2017, including the accounting for construction and services contracts, pension liabilities and issues around whether the business could continue to operate.
It said an “independent expert” was considering its analysis and would advise “on whether there were breaches of auditing standards”.
The FRC added that it was co-operating “to the fullest extent permissible” with other regulators pursuing parallel investigations. These include the Insolvency Service, which is looking into the conduct of Carillion’s directors and the cause of the collapse, and the National Audit Office, which is reviewing the rescue by the UK government of Carillion’s PFI hospital contracts.
The FRC announced an investigation into KPMG’s audits and the conduct of Carillion’s two former finance directors, Richard Adam and Zafar Khan, just two weeks after the outsourcer went bust in January 2018.
A year later it began a parallel investigation into Peter Meehan, the KPMG audit partner in charge of Carillion, and three members of his team over concerns that documents they had provided to the regulator in relation to the audit work had been backdated. Mr Meehan and his colleagues have been suspended pending the outcome of the investigation.
KPMG had audited Carillion since 1999 and signed off on its accounts in March 2017 — four months before the business issued a catastrophic profit warning triggered by an £845m writedown, and nine months before it collapsed.
The FRC has been under pressure from politicians to conduct a speedy investigation into KPMG’s audit. But several extensions to the investigation have pushed back the prospect of a quick outcome.
KPMG declined to comment on the latest update.
The company is also facing a lawsuit over alleged negligence in its audits of Carillion by the Official Receiver, the civil servant in charge of winding down the outsourcer. It has instructed US law firm Quinn Emanuel to pursue a case in London.
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