The Financial Reporting Council (FRC) has imposed a record sanction of GBP21 million on KPMG, one of the Big Four accounting firms, for its failures in relation to the audit of Carillion—a construction and outsourcing firm that is now defunct. The fine, equivalent to over $25 million, has been reduced from GBP30 million to reflect KPMG’s cooperation during the more than five-year investigation.
According to the FRC, the findings reveal an unusually large number of breaches, indicating that Carillion did not undergo rigorous, comprehensive, and reliable audits in the three years leading up to its collapse.
KPMG has also been ordered to pay GBP5.3 million in costs. Jon Holt, KPMG’s U.K. Chief Executive, has conceded that the firm’s audit work on Carillion was severely lacking for an extended period and described the findings as “damning.” Holt affirmed that KPMG has since taken measures to enhance controls and oversight following its audits of Carillion.
In addition to the fine imposed on KPMG, Peter Meehan, the former KPMG partner who led the Carillion audit from 2014, was fined GBP350,000 and banned from the profession for 10 years. Darren Turner, who led the audit in 2013, was sanctioned with a GBP70,000 penalty.
Carillion announced more than GBP1 billion in writedowns in 2017, shortly after receiving an unqualified audit opinion from KPMG.
This is not the first time KPMG has faced repercussions for its failures related to audits. Last year, the FRC fined the company GBP14.4 million for its shortcomings in the audits of Carillion and Regenersis, a data-security company.
The collapse of Carillion in early 2018 has prompted an impending overhaul of the U.K.’s audit and accounting sector.