KPMG fined for misleading regulator about Carillion audit

Auditing giant KPMG will pay £18.35 million over the potentially conniving behaviour of some of its former staff when they reported to regulators on their audit of collapsed outsourcing firm Carillion.

The Financial Reporting Council also kicked four of the firm’s former staff out of the Institute of Chartered Accountants in England and Wales for between seven and 10 years.

They had “made, or connived in or were knowingly associated with making, certain false or misleading representations,” to the FRC’s Audit Quality Review (AQR) team.

“The seriousness of the misconduct that we have found proved scarcely needs explanation,” said a tribunal which heard the case.

“Effective audits are essential to the financial system. Management and investors should be able to rely on the audited financial reports of the company in question.

“The purpose of AQRs is to assess, and where appropriate suggest improvements to, the effectiveness of audits.”

KPMG was fined £20 million, reduced to £14.4 million because it cooperated and admitted wrongdoing, and agreed to pay nearly £4 million in costs.

The four former staff members were fined a combined £365,000. A fifth member of staff was severely reprimanded.

The wrongdoing concerned “false and misleading information and documents” submitted on the audits of both Carillion, and Regenersis, a data company.

“Misconduct that deliberately undermines the FRC’s ability to monitor and inspect the effectiveness of audits is extremely serious because it obstructs the FRC’s ability to protect the public interest,” said executive counsel Elizabeth Barrett.

“This case underlines the need for all professional accountants, regardless of seniority, to be aware of their individual responsibility to act honestly and with integrity in all areas of their work.”

KPMG chief executive Jon Holt said: “I accept the findings and sanctions of the tribunal in full.

“The behaviour underlying this case was wrong and should never happened.

“We reported it to our regulator as soon as we uncovered it and we have cooperated fully with their investigation.

“Since then, we have worked hard and with complete transparency to our regulator, to assure ourselves that the behaviour of the individuals concerned does not reflect the wider culture of the firm.”