KPMG receives record fine over Carillion audit

The auditor was fined a total of £21m across two investigations conducted by the regulator, in relation to its financial audits of construction firm between 2013 and 2016. Two further fines were handed out to former audit partners Peter Meehan and Daren Turner worth £350,000 and £70,000 respectively. 

The construction giant collapsed back in 2018 with debts in excess of £1.5bn, leaving projects – including Liverpool’s Royal Hospital and the Aberdeen bypass project – unfinished, as well as contracts in prisons, hospitals and with the army unfulfilled. 

Commenting on its decision, the Elizabeth Barrett, who is on the FRC’s executive counsel, said: “The credibility of reports and opinions issued by auditors in connection with financial statements depends upon beliefs concerning the integrity, objectivity and independence of auditors and the quality of the audit work performed. 

“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.” 

In response, Jon Holt – KPMG senior partner at chief executive – described the FRC’s findings as “damning”. He added: “We have cooperated fully with the investigation, and we accept its conclusions and the sanctions that have been imposed without reservation. I am very sorry that these failings happened in our firm. 

“It is clear to me that our audit work on Carillion was very bad, over an extended period. In many areas, some of our former partners and employees simply didn’t do their job properly. Junior colleagues were badly let down by those who should have set them a clear example, and I am upset and angry that this happened at our firm. 

“Since this audit work was undertaken, we have done an enormous amount to improve controls and oversight across our firm, to ensure that these failings could not take place today. But ultimately it still falls to each of us, individually, to hold ourselves and each other to the highest professional standards every day.”