Tuesday 26 February 2019 9:36 am

Financial Reporting Council extends probe into Carillion's accounts

Britain’s accounting watchdog will look even further into the past in its investigation of the audit of failed outsourcing giant Carillion.

For the first time the Financial Reporting Council’s (FRC) probe will stretch to work done in 2013 – but a spokesperson declined to say why this was.

Read more: KPMG boss confident in Carillion audit despite partner suspension

Carillion’s collapse in January last year has become a flashpoint for criticism of the audit industry, with a particular focus landing on external auditor KPMG for its alleged failure to sound the alarm over the outsourcer’s significant debts.

Hedge funds including Blackrock and Marshall Wace held short positions in Carillion as early as 2013, indicating cracks at the firm may have been starting to show even then. By the time it finally went into administration early last year, it had liabilities of nearly £7bn. Pensions liabilities totalled £2.6bn, forcing the Pension Protection Fund to take its largest ever hit, while the outsourcer owed £2bn to 30,000 suppliers, subcontractors and other short term creditors when it collapsed.

Last month the FRC said its investigation had reached a “critical stage”, but it remains unclear what that stage is or when the probe is likely to end.

In early January, KPMG confirmed that it had suspended the audit partner with overall responsibility for Carillion, Peter Menshan, along with three other non-partner members of the auditing team, over concerns documentation provided to the regulator had been backdated.

A further investigation into documents provided to the FRC by KPMG was opened in November, after the audit firm self-reported potential issues with its submission to the watchdog’s audit quality review (AQR).

Read more: Watchdog investigation into KPMG’s Carillion audit at ‘critical stage’

The FRC said last month it was examining “very significant quantities of documents”, and planned further interviews with KPMG and Carillion employees early this year. It said it was “committed to completing its investigations promptly and thoroughly”, but added that the “complex” investigation would continue “well into 2019”.

KPMG said: “Transparency and accountability are vital to 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 continue to co-operate fully with the FRC’s investigation.”