KPMG fined millions for significant and serious breaches in Carillion audit

The Financial Reporting Council has fined the auditors of multinational construction and facilities management services company Carillion which collapsed in 2018, £21 million for ‘significant and serious breaches’.

Two Final Settlement Decision Notices have been imposed against KPMG LLP, KPMG Audit Plc, and two former audit partners for failing to ‘adopt a rigorous and robust approach and accepting the presentation of financial information that suited Carillion’s management.’

The first decision relates to the investigation opened on 26 January 2018 into the statutory audit of the financial statements of Carillion for the financial years ended 31 December 2014, 2015, and 2016, and additional audit work in 2017. The second relates to the investigation opened on 12 February 2019 into the statutory audit of certain transactions relating to the financial statements of Carillion for the financial year ended 31 December 2013.

The financial sanctions against KPMG LLP is £26,500,000, reduced by 30 per cent to £18,550,000 to reflect the firm’s co-operation and admissions; while a former partner Peter Meehan was fined £500,000, reduced to £350,000 to reflect his co-operation and admissions.

A non-financial sanction order requires KPMG LLP to take remedial action aimed at preventing recurrence of the breaches of Relevant Requirements including evaluating and reporting whether the measures taken by the firm since 2017 are sufficient.

The second decision concerning KPMG Audit Plc includes a total financial sanction of £3,500,000, reduced by 30 per cent to £2,450,000 to reflect the firm’s co-operation and admissions; while a second former partner Darren Turner was fined £100,000 reduced to £70,000 to reflect co-operation and admissions.

Said Elizabeth Barrett, Executive Counsel of FRC:

“The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit. This is reflected in the financial sanction imposed on KPMG LLP, the highest ever imposed by the FRC.”

“Many of the breaches involve failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain sufficient appropriate audit evidence. The breaches in relation to the 2016 audit even include failing to ensure that the audit process itself was properly managed and that the audit file was a reliable record. These requirements lie at the heart of proper auditing.

“The seriousness of the failings in the 2016 audit is compounded by the breaches of the Ethical Standards relating to the fundamental principles of objectivity, independence, and integrity.

“The non-financial sanctions imposed on KPMG LLP are focused on ensuring that failures on this scale will never be repeated.”