Sanctions imposed on accountants over Carillion failure

The construction and outsourcing group collapsed into liquidation in January 2018 with debts of £7 billion.

A number of sanctions have been imposed on KPMG and two of its former partners in Executive Counsel Elizabeth Barrett's two full final settlement decision notices.

She said that KPMG failed to adhere to the “most basic and fundamental audit concepts” in its audits of Carillion.

“Its failure was exceptional and undermined that credibility and the public trust in audit," she added.

The FRC hit the firm with a record fine of £30 million in October, which was reduced by 30 per cent to £21m due to its co-operation and admissions.

Former partner Peter Meehan received a £500,000 fine, which was reduced to £350,000, as well as an exclusion from membership of the Institute of Chartered Accountants in England and Wales for 10 years after he failed to ensure that the audit engagement was properly managed and supervised.

Darren Turner was given a £100,00o fine which was reduced to £70,000. The FRC says that he and KPMG did not obtain sufficient, appropriate audit evidence to satisfy themselves that an accountancy treatment was appropriate when KPMG changed its provider of outsourced IT and business process services.

Both the firm and Mr Meehan and Mr Turner will have to make a statement saying that Carillion audits were not satisfactory – as well as ensure that the mistakes made do not happen again in the future.

Elizabeth Barrett 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.”