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“What’s in the fridge?” FRC imposes record fine on KPMG for Carillion audit failings


Carillion plc was an outsourcing giant, handling large numbers of government contracts (among other interests). Its business collapsed in January 2018, costing many thousands of jobs and endangering critical activities across Britain, including hospital cleaning and school meals.  When it collapsed it had just £29m in cash but £7bn in liabilities. Only months earlier KPMG had given an unqualified audit opinion on its financial statements. At a Parliamentary Joint Committee hearing in 2018, an incredulous MP told the audit partner “I wouldn’t hire you to audit the contents of my fridge”.

The Executive Counsel to the Financial Reporting Council, Elizabeth Barrett, began investigating KPMG’s auditing of Carillion plc very soon after Carillion entered insolvency. Ultimately the investigation spanned the audits for the financial years 2013, 2014, 2015 and 2016, as well as some post-audit work in 2017.

  • This included an investigation into whether members of the audit team had deliberately misled the FRC’s Audit Quality Review team when it first carried out an inspection of KPMG’s 2016 audit (before the collapse). This strand of the FRC’s work culminated in disciplinary proceedings, the outcome of which was recorded in a Tribunal Report in September 2022 upholding multiple charges of dishonesty and want of integrity (see here). KPMG was fined £14.4m and various sanctions were imposed on individual members of the audit team, including the audit partner being excluded from the profession for 10 years.
  • In parallel, the FRC progressed its main investigations into KPMG’s auditing work. It delivered an Initial Investigation Report in August 2020, which ultimately led to the Executive Counsel issuing Final Settlement Decision Notices on 12 October 2023. The Notices set out an extensive catalogue of audit failings in all of the years covered by the investigations. Not only did KPMG fail to obtain sufficient appropriate audit evidence throughout its work in multiple areas of the audit for multiple years, but it also regularly demonstrated a lack of professional scepticism as to representations from Carillion’s management, and sometimes also showed a lack of objectivity or integrity. More detail may be found here,
  • Under the Final Settlement Decision Notices, KPMG has been fined a total of £30m (reduced to £21m after a 30% discount for co-operation). This is the highest fine which the FRC has ever imposed. There are also non-financial sanctions aimed at preventing such failings occurring again. The two relevant audit partners have received significant additional personal fines and sanctions.

The FRC’s investigations have involved a very substantial amount of work by a large group of forensic accountants and specialist lawyers. The FRC’s team of five commercial barristers was led throughout by Tom Adam KC and included Alan Roxburgh.