Two former partners at the consultancy, Peter Meehan and Darren Turner, have also received sanctions of £350,000 and £70,000, respectively.
In addition, Meehan has been excluded from membership of the Institute of Chartered Accountants in England and Wales for 10 years.
KPMG audited the financial statements of Carillion and its group companies for the financial years 2014, 2015, and 2016. In each of these years, KPMG provided an unqualified audit opinion that the financial statements gave a true and fair view of Carillion’s position, the UK accounting regulator said.
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“Carillion was a very important client for both KPMG and key members of the audit team during the relevant years,” the FCR said in its summary of findings. “This created a risk to their objectivity. In a number of instances, Mr Meehan and other members of the audit team failed to adopt a rigorous and robust approach, accepting the presentation of financial information that suited Carillion’s management.”
Significant and serious breaches
The FCR said KPMG was subject to many failings, including failure to conduct its audit work with an adequate degree of professional scepticism, and failure to gather sufficient appropriate audit evidence to enable KPMG to conclude that the financial statements were true and fair.
The investigation found significant and serious breaches in each audit investigated. These breaches contributed to Carillion, which had multiple large contracts in the public sector, not being subject to rigorous, comprehensive, and reliable audits in the three years leading up to its collapse.
“In particular, in 2016 KPMG and Mr Meehan’s work in respect of going concern and Carillion’s financial position generally was seriously deficient,” the FCR said. “KPMG and Mr Meehan failed to respond to numerous indicators that Carillion’s core operations were lossmaking and that it was reliant on short-term and unsustainable measures to support its cash flows.”
Failure to adhere to basic audit principles
All of the total sanctions imposed on KPGM LLP, KPMG Audit Plc, Meehan and Turner were reduced by 30% “to reflect [the firms and the auditors] cooperation and admissions”.
Elizabeth Barrett, FCR’s executive counsel, said: “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.”
Earlier this week, the Insolvency Service banned former Carillion CEO Richard Howson from being a director for eight years.
