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FRC provides update on Carillion investigation

UK audit watchdog, the Financial Reporting Council (FRC) has provided an update into its investigation of the collapse of construction giant Carillion last January following “significant public interest” in the case.

The FRC is investigating KPMG’s audits of Carillion (2014-2017) and the conduct of two former finance directors, Richard Adam and Zafar Khan.

In the announcement, the FCR revealed in November 2018 it had opened a further investigation relating to the provision of materials to the FRC by the Big Four accountancy firm, KPMG, in connection with the FRC’s Audit Quality Review into aspects of the audit of Carillion for the year end 2016. The FCR stated its decision to open this investigation followed “matters self reported” by KPMG.

A KPMG spokesperson said: “Over the past year, we have been performing a thorough review of the firm’s audit of Carillion. Our investigation included the audit team’s response to the FRC’s AQR undertaken during 2017, which looked at aspects of the 2016 audit.

“Concerns were identified in connection with a small number of documents provided to the FRC’s team during the routine AQR. On discovery of this information, we immediately reported our findings to the FRC.

“It is important to note that this took place after the signing of the audit opinion and we have not identified any evidence or indication that it had any impact on the audit conclusions of Carillion.

“We are taking this matter extremely seriously and have engaged outside legal counsel to conduct an independent investigation into the circumstances of the AQR and the conduct of the individuals involved.

“We acted swiftly and decisively and will continue to take all necessary steps to deal with this, including cooperating fully with the FRC.”

The FRC stated it “continues to progress its original investigations in relation to the collapse of Carillion in conjunction with other regulators. A key area of focus has been the financial performance of Carillion’s major contracts in both the construction and services divisions, and whether Carillion management and its auditors ensured that this was appropriately reported in its financial statements.

“The investigations are also considering conduct relating to pension liabilities, goodwill, cash disclosures and going concern.”

The FRC has obtained and is analysing very significant quantities of documents relating to these areas. It added “detailed interviews have been conducted with audit team members and Carillion senior executives and further interviews are planned for early 2019”

The FRC launched its original investigations in January and March 2018 and provided an initial update on those investigations in May 2018.

The update follows KPMG’s suspension of partner Peter Meehan, who signed off Carillion’s last full set of accounts, along with three members of his team.

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