Update on FRC investigations in relation to Carillion
10 January 2020
On 29 January 2018 the FRC announced the opening of an investigation
in relation to KPMG’s audit of the financial statements of Carillion plc, for the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017. We provided updates on the progress of the investigation in May 2018 and January 2019. In February 2019 we announced the opening of an investigation in respect of the audit of certain matters relating to the financial statements of Carillion plc for the year ended 31 December 2013.
Our investigation of the audits is well advanced. An extensive review has been undertaken of a substantial volume of material, including the audit work papers, documents produced by Carillion and third parties e.g. internal auditors and external advisors, and emails and other correspondence. We have also conducted a series of detailed interviews. An independent expert is now considering our analysis in order to provide an expert opinion on whether there were breaches of auditing standards. We are also taking advice from external Counsel and we continue to cooperate to the fullest extent permissible with other regulators pursuing parallel investigations.
The scale and complexity of this case is exceptional, with a huge volume of documents and information that has had to be reviewed and analysed. The investigation encompasses a four-year period, and numerous significant audit areas, including the accounting for construction and services contracts, pensions liabilities, goodwill and going concern. All of the accounting years and each of the audit areas identified remain under active consideration The FRC therefore currently expects to complete the first stage of its investigation by summer 2020, rather than by January 2020.
We are also investigating the conduct of Mr Richard Adam and Mr Zafar Khan, former group finance directors of Carillion and members of the ICAEW, in connection with the preparation of Carillion’s financial statements during the same period, as well as an additional, investigation into KPMG in connection with the FRC’s Audit Quality Review into aspects of the audit of Carillion for the year end 2016. These investigations have inevitably impacted on the the audit investigations and their progress.
The FRC aims to complete the first stage of the Enforcement process within two years of the commencement of the investigation. In audit cases this means completing the factual investigation and either closing the case or providing to the subjects of the investigation a formal report setting out factual findings and breaches of the applicable standards that appear to have occurred. If the FRC determines that breaches of audit standards appear to have occurred, the subjects have an opportunity to decide whether to admit or to contest the allegations and to provide representations before a decision is made whether to pursue enforcement proceedings , and, where applicable, on the appropriate sanctions to impose. Contested cases are ultimately resolved by an independent Tribunal following a public hearing.
It should be noted, however, that the formal investigation report provided to the subjects of the investigation is not published, as no final determination has been made. Where enforcement action is pursued, the substance of any findings or any Tribunal report as applicable is published on the FRC’s website after the case has been concluded and following any appropriate notifications to third parties. In the event that the FRC’s investigations lead to a decision not to pursue enforcement proceedings, we publish the closure of the matter as soon as practicable thereafter. It is therefore not possible to say when the outcome of an investigation is made public, as this may ultimately be determined by a Tribunal independent of the FRC.