KPMG has admitted a ‘disturbing’ case of misconduct following allegations of forging documents related to its Carillion audit.
Admitting the rare mistake on the first day of the legal proceedings, the Big Four accountant said it was “clear that the misconduct occurred” when questioned by industry watchdogs about the quality of the collapsed engineering giant’s audit.
But despite the KPMG apology, the case will continue for five weeks as six former employees try to break free from their responsibilities.
Pardon: Big Four accountant KPMG bust outsourcing when it was questioned by guards about the quality of Carillion’s audit, saying it was “clear that the misconduct had occurred.”
The regulator Financial Reporting Council (FRC) has accused KPMG and several former staffers of Carillon and another outsourced Regenerisis of misleading them when they tried to review their audits.
When the case began yesterday, FRC attorney Mark Ellison QC sued six former workers – including partner Peter Meehan, who led KPMG’s audit of Carillion – to help create documents that looked more like they did in audits. .
The audit examines the company’s financial statements and flags down to investors, customers and suppliers what they find to be bad.
Every so often, the FRC is asked to review a select few investigations to ensure that accountancy firms are doing their jobs properly.
But when people at KPMG asked about their 2016 Carillion Audit and the 2014 Regeneries Audit, Ellison said they found records to show to inspectors – and tried to pass them on as they did during the audit.
Just two years after the investigation, Carillon fell into administration in the UK’s biggest corporate collapse in decades. It failed under the weight of the gigantic debt pile, after the value of its contracts had to be written off.
Investors, suppliers and consumers – including the government – have pulled millions of pounds out of pocket.
Mehta Analysis: KPMG Chairperson Beena Mehta (pictured), who was appointed last February, is facing a headache
The FRC is still conducting two other investigations into possible failures in Carillion’s audits, but the company’s liquidators are preparing a separate £ 250 million negligence claim against KPMG.
But if the disciplinary tribunal admits the FRC’s audit quality inspectors were misled, the accountancy giant could be fined multiple-million-pound in a few weeks.
KPMG UK chief executive John Holt said: ‘The misconduct that this tribunal is going to hear in the coming weeks will be disturbing and upsetting for me and my colleagues.
‘This misconduct is a violation of our processes and is clearly against our values.
‘It’s not acceptable. We don’t tolerate or condone it in any way, and I am very sorry that this has happened at our institution.’
The chief executive explained that KPMG had found the malpractice in its own internal investigation and immediately reported it to the FRC.
Holt, who was appointed last April, said: ‘The Tribunal is certainly going to decide on the allegations because they are related to the individuals involved. Nevertheless, it is clear to me that misconduct has occurred and our regulators have been misled.
‘I am very sorry that the individuals involved in this case failed to act properly or call others’ inappropriate behavior, and I am saddened that some relatively young former staff members are facing the most serious regulatory sanction in the early stages of their careers. . ‘
KPMG’s UK Chairperson Beena Mehta, who was appointed last February, has pledged that the case will cause headaches and regularize the business house.
Three months ago, the FRC accused the group of lying in its investigation of the bed manufacturer’s Silentnight sale, which it advised. The KPMG bumper has been fined £ 13 million over the Silent Night scandal.
Mehta became the first woman to take on the role of KPMG president when Bill Michael was forced to resign after telling young staff to “stop crying” and “play the victim card” on the impact the lockdown would have on them.