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.
UK watchdog finds apparent breaches by KPMG’s Carillion audit [Reuters]
Congrats to Deloitte U.K. for Getting the Largest Fine Ever Handed Out by the Financial Reporting Council
Its strange that we now hear of rampant negligence and an absence of professional scepticism and duty of care by auditors in whom the public have reposed their faith of fair and balanced reporting.
The tribunal should deliver a deterrent judgement.
Unless and until both internal auditors as well as the external auditors are treated as both sides of the same coin, rampant negligence by external auditors will continue. Therefore internal auditors, just like external auditors, have to be appointed by legislation rather than by choice as is currently the case.
The big set believe that audit quality means that having a heap of documents which are nicely and cloufuly arranged in the current file and permanent file. Most of these documents are pre printed formats and the job of audit team is that filling of this formats. It is my experience that these guise are very smart to explain these set procedures A to Z like parrots.This results that most of the misstatements and frauds are going undetected and corporate failure is the ultimate outcome.
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