Financial Reporting Council launches probe into KPMG's audit of Carillion

 
Caitlin Morrison
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British Construction Company Carillion Goes Into Compulsory Liquidation
Carillion collapsed earlier this month (Source: Getty)

The accounting watchdog is opening an investigation into KPMG's auditing of Carillion's financial statements.

The Financial Reporting Council (FRC) announced its decision this morning, and said the probe will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017.

The regulator's enforcement division will "consider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors", the FRC said.

"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, estimates and recognition of revenue on significant contracts, and accounting for pensions," the watchdog added.

"We note the announcement of the FRC’s investigation into our audits of the financial statements of Carillion plc for the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017. As we have already commented, we believe that we conducted our role as Carillion’s auditor appropriately and responsibly," said a spokesperson for KPMG.

Transparency and accountability are vital in building public trust in audit.

"We believe it is important that regulators acting in the public interest review the audit work related to high profile cases such as Carillion. We will co-operate fully with the FRC’s investigation.”

The investigation into its accounts follows Carillion's collapse into liquidation earlier this month, under the weight of billions of pounds in debt. The FRC said last week that it had been "actively monitoring this situation for some time".

Meanwhile, MPs have accused the failed construction giant of trying to "wriggle out of its obligations to its pensioners".

The collapse of Carillion is currently being investigated by two parliamentary committees, the Work and Pensions Committee and the BEIS Committee. "The committees will be investigating how a company that was signed off by KPMG as a going concern in Spring 2017 could crash into liquidation with a reported £5bn of liabilities and just £29m left in cash less than a year later," the two sets of MPS said in a statement last week.

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