UK watchdog finds apparent breaches by KPMG's Carillion audit

By Huw Jones

LONDON, Sept 21 (Reuters) - Britain's accounting regulator
said it has delivered its initial report into KPMG's audit of
builder Carillion, an indication that apparent rule
breaches have been found.

The construction company's collapse in 2018 angered
lawmakers who called on the Competition and Markets Authority to
consider breaking up top accountants to increase competition and
auditing standards.

After an initial investigation, the FRC either closes the
enforcement case or, if apparent breaches have been found,
delivers an Initial Investigation Report.

In a rare statement reflecting the case's high profile, the
Financial Reporting Council (FRC) said it has delivered an IIR
on KPMG's audit of Carillion for the years ended 2014 to 2016,
and additional audit work in 2017.

A copy of the report, which has not been published, has been
sent to KPMG, one of the world's Big Four auditors, for a
response.

"We believe it is important that regulators acting in the
public interest review the audit work related to high profile
cases such as Carillion and we are cooperating fully with the
FRC’s investigation," KPMG said in a statement.

"We can confirm we have received the Initial Investigation
Report but because the regulatory process is ongoing, we cannot
comment further," KPMG said.

A key area of focus in the FRC's investigation was 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.

Once the FRC has received KPMG's response, it will decide
whether to continue with the enforcement case or not. If the FRC
continues with the case, its findings and sanctions can be
contested by KPMG at an independent tribunal.

Fallout from Carillion and the collapse of retailer BHS is
already being felt in the audit sector with the Big Four firms
having to tell the FRC next month how they will ring fence their
UK audit arms to help improve standards.

(Reporting by Huw Jones; Editing by Kirsten Donovan)

Carillion Plc