Sunday 27 May 2018

KPMG facing Carillion audit probe by watchdog

The UK construction giant collapsed after failing to secure a UK government bailout as its debts mounted Photo: Bloomberg
The UK construction giant collapsed after failing to secure a UK government bailout as its debts mounted Photo: Bloomberg

Aoife White and Donal O'Donovan

The UK Financial Reporting Council (FRC) opened a probe into KPMG's audits of Carillion, after the builder collapsed under a mountain of debt.

The case is certain to remind many of KPMG's auditing of the former Irish Nationwide Building Society (INBS) before the crash here, which has long been controversial. KPMG also held the audit contracts for AIB and PTSB before the Irish crash.

Bill Thomas, chairman of KPMG International Photo: Bloomberg
Bill Thomas, chairman of KPMG International Photo: Bloomberg

Two years ago a review of KPMG's audit of the INBS, undertaken for its liquidators found there was no "stateable case" of negligence against the accounting firm. That report had to be done by an outside law firm, because Kieran Wallace and Eamonn Richardson, the special liquidators appointed to liquidated IBRC, the bank created from a merger of INBS and the former Anglo Irish Bank, are partners in KPMG.

In the UK, the FRC will examine KPMG's work from 2014 and whether the auditor breached any "ethical and technical standards", the accounting regulator said in a statement. The FRC will also look at how KPMG recognised revenue on significant contracts and its accounting for pensions.

Carillion, a UK construction company with government contracts in everything from hospitals to the HS2 high-speed rail project, collapsed earlier this month after failing to shore-up finances and get a government bailout, leaving behind debts of £1.6bn (€1.8bn). Its fall had been gathering pace since July after a series of construction contracts soured.

The failure has prompted a debate in Britain about both how companies are run and the extent to which the government relies on businesses to provide services. "Several areas of KPMG's work will be examined including the audit of the company's use and disclosure of the going concern basis of accounting," the FRC said. "We will conduct the investigation as quickly and thoroughly as possible." The FRC said its probe followed inquiries made since the July 2017 profit warning and would examine audits of financial statements for the years 2014, 2015 and 2016, and additional audit work carried out during 2017.

KPMG, headed worldwide by Bill Thomas, said it would co-operate with the FRC probe and believes it "conducted our role as Carillion's auditor appropriately and responsibly".

"Transparency and accountability are vital in building public trust in audit," KPMG said in an emailed statement. "We believe it is important that regulators acting in the public interest review the audit work-related to high-profile cases such as Carillion."

Irish Independent

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