From Reuters today:
Britain’s accounting regulator said it has delivered its initial report into KPMG’s audit of builder Carillion, an indication that apparent rule breaches have been found.
The construction company’s collapse in 2018 angered lawmakers who called on the Competition and Markets Authority to consider breaking up top accountants to increase competition and auditing standards.
After an initial investigation, the FRC either closes the enforcement case or, if apparent breaches have been found, delivers an Initial Investigation Report.
In a rare statement reflecting the case’s high profile, the Financial Reporting Council (FRC) said it has delivered an IIR on KPMG’s audit of Carillion for the years ended 2014 to 2016, and additional audit work in 2017.
The FRC sent the IIR to KPMG, and in a statement to Reuters, KPMG confirms it has the report. And what’s in the report, which wasn’t made public because no final determination was made by the FRC, is probably pretty bad for the House of Klynveld.
Carillion fell into liquidation in 2018 after the U.K. government refused to bail it out, putting nearly 3,000 people out of work and leaving 30,000 suppliers and subcontractors with £2 billion in unpaid bills. It was one of the largest corporate failures in British history—and KPMG will forever be tied to it.
In a media release, the FRC said now that the IIR was delivered to KPMG, the firm will be given time to respond. Once that response is made, the FRC will then decide whether to pursue enforcement proceedings:
If enforcement proceedings are pursued a Decision Notice will be issued outlining the breaches which the Executive Counsel considers to have occurred, and, where applicable, proposing appropriate sanctions to impose. Contested proceedings are ultimately resolved by an independent Tribunal following a public hearing.
My guess is this case is eventually going to be heard by an independent disciplinary tribunal, which will help the FRC determine what kind of punishment KPMG (and probably some of its auditors) receives for its horrible auditing of Carillion.
That’s what the tribunal did in the case of Deloitte U.K. and Autonomy, which resulted last week in Big D getting the largest-ever fine (£15 million) handed out by the FRC to a Big 4 firm.
But once the tribunal gets done with the KPMG/Carillion case, Deloitte won’t have that record for long.