Report into KPMG’s failed audit of Carillion delayed to the summer

Auditor suspended following the collapse of giant contract firm

Construction News have reported on a delay to a parliamentary report on the failed auditing of Carillion by KPMG.

Caroline Wadham of the trade journal writes: “The outcome of an investigation into KPMG’s auditing of Carillion's accounts will not be published until the summer. The first stage of the probe, being carried out by the Financial Reporting Council (FRC), was initially expected to complete this month.

“The accounting watchdog is investigating KPMG’s audit of Carillion’s financial statements for the financial years ending 2014, 2015 and 2016 as well as additional audit work undertaken by the firm during 2017. It launched the inquiry two years ago and said it has made considerable progress with an independent expert currently considering its analysis.”

Ian Carrotte of ICSM Credit said some members of the credit intelligence group had been affected by the collapse of Carillion while others had pulled out once the news from other members said the firm was in trouble. He said: “It beggars’ belief that KPMG could have given Carillion a clean bill of health so soon before the collapse. Warning bells were ringing soon after the audit that you wonder how the accountants could not see the black hole of debt that would bring the company down.”

Many contractors who worked for Carillion lost work, money and jobs. Construction News said that in the update statement released on Friday, the FRC said it has completed interviews and examined KPMG’s audit work papers as well as additional documents provided by Carillion and third parties. Caroline Wadham reported: “The council is currently taking advice on the case from an external counsel. It said all four accounting years and audit areas, including accounting for construction and services contracts, pension liabilities, goodwill and going-concern remain under active consideration. Progress on the case has been affected by investigations into the conduct of Carillion former group directors Richard Adam and Zafar Khan and an FRC’s Audit Quality Review into an audit of Carillion during the 2016 financial year.”

Since the investigation was announced in 2018 the auditor for KPMG Peter Meehan and his staff have been suspended.

The Independent Newspaper Website’s Noor Zainab Hussain provided this timeline:

January 15, 2018

Carillion collapsed after banks refused to provide any further financial support following fruitless rescue talks over the weekend.

January 12, 2018

Carillion said it remained in “constructive discussions” with its creditors and that suggestions they had rejected its business plan were incorrect.

Sky News reported that Carillion has put administrators on standby in case rescue talks fail.

January 9, 2018

Carillion said it was not aware of any development to support a recent share price rise, a day after reports of a government bailout.

January 6, 2018

Carillion said it would meet creditors on January 10 as it seeks a financial rescue plan.

January 3, 2018

The Financial Conduct Authority said it was investigating statements made by Carillion over seven months up to and including a profit warning last July.

December 22, 2017

Carillion said it had received all necessary consents from lenders to defer two financial covenants to April 30 from the end of the year.

December 20, 2017

Carillion moved the start date for new chief executive Andrew Davies forward to January 22 from April 2.

December 13, 2017

Carillion said it had reached a deal to sell a large part of its UK healthcare facilities management business to outsourcing group Serco, helping it cut debt by £41.4m.

December 11, 2017

Scottish investment firm Kiltearn Partners, the largest shareholder in Carillion, halved its stake, a regulatory filing showed.

November 17, 2017

Carillion’s shares tumbled 34 per cent after it issued its third profit warning in five months and said it was heading towards a breach of debt covenants and would need fresh capital.

November 6, 2017

Carillion won two contracts with state-owned Network Rail, which should generate revenue of almost £200m for the company over the next three years.

October 27, 2017

Carillion named Davies as its chief executive, bringing in a former executive of defence company BAE Systems to help turn around its business.

October 24, 2017

Carillion agreed to new credit facilities and deferrals on some debt repayments, sending its shares up as much as 25 per cent.

October 12, 2017

Carillion confirmed that it had received proposals from more than one counterparty for the possible acquisition of its UK healthcare business.

September 29, 2017

Carillion had its second profit warning in 2017 and said it may need to sell shares to shore up its balance sheet.

September 11, 2017

Carillion announced the departure of its finance chief along with a series of changes to its management.

August 24, 2017

Carillion said it had been named as the main contractor on a £300m Manchester property development.

July 18, 2017

A Carillion joint venture won contracts worth £158m to supply catering and other services for British military sites.

July 17, 2017

A consortium that includes Carillion won a £1.4bn contract to help build Britain’s High Speed 2 railway.

July 14, 2017

Carillion added HSBC to its team of financial advisers, fuelling speculation that it was preparing a rights issue.

July 11, 2017

Carillion shares fell a 30 per cent as analysts doubted whether a string of measures to conserve cash would be enough to stave off a rights issue.

July 10, 2017

The chief executive of Carillion quit as the group warned on full-year profit and said it was pulling out of three construction markets in the Middle East. The company also said payment problems on four construction contracts nearing or reaching completion had forced it take a provision of £845m.

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