KPMG hit with record fine over audit failings at collapsed Carillion

KPMG has been hit with a record fine for its auditing of collapsed construction firm Carillion, which went under in 2018 with thousands of jobs lost.

The Financial Reporting Council (FRC) has issued a £30m fine on KPMG, reduced by 30% due to the accountancy firm’s co-operation with the inquiry along with admission of malpractice.

KPMG will also have to make a statement saying that Carillion audits weren’t satisfactory – as well as ensure that the mistakes made don’t happen again in the future.

Elizabeth Barrett, executive counsel at the FRC, 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.”