The Financial Reporting Council (FRC) is liaising with the Official Receiver, the Financial Conduct Authority, the Insolvency Service and the Pensions Regulator to ensure a joined-up approach to the investigation of all matters arising from the collapse of Carillion.
The Financial Conduct Authority is investigating ‘the timeliness and content’ of statements put out by Carillion in the run up to its July 2017 profits warning.
Two House of Commons select committees, the Work & Pensions Committee and the Business, Energy & Industrial Strategy Committee, have also joined forces for an inquiry into the collapse of Carillion.
The FRC investigation, under the Audit Enforcement Procedure, is in relation to KPMG's audit of the financial statements of Carillion. The investigation will look at all KPMG’s audit work for Carillion since 2014.
The investigation will be conducted by the FRC's enforcement division, and will consider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors. Several areas of KPMG's work will be examined including the audit of the company's use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts, and accounting for pensions.
The two House of Commons committees also said that they wanted to know “how a company that was signed off by KPMG as a going concern in spring 2017 could crash into liquidation with a reported £5bn of liabilities and just £29m left in cash less than a year later”.
Frank Field MP, chair of the Work & Pensions Select Committee, said: "Another day, another company goes bust hot on the heels of a clean bill of health from a Big Four financial services firm. The particularly nasty twist in this now grimly familiar tale is the mountain of debt and giant pension deficit this public services contractor leaves in the wreckage of its collapse– with an accompanying massive hit to the public purse.
“It must also be time now for the auditors who cosily signed off this disaster-in-the-making as a 'going concern' less than a year ago to begin to account for themselves."
Rachel Reeves MP, chair of the Business, Energy & Industrial Strategy (BEIS) Committee said: "In the wake of the BHS scandal, Carillion has the hallmarks of another corporate governance failure with directors asleep at the wheel while the business went off a cliff, in this case leaving jobs, pensions and public services under threat and a host of suppliers out of pocket. How is it that so many warning signs were ignored by the company and the government?
“What were the Carillion board and senior management doing to address the spiralling problems at the company? Why are the regulatory bodies stepping in only after Carillion’s collapse? As a committee we will also want to explore the executive pay arrangements at Carillion, the potential cost to the taxpayer of the insolvency, and the role of both directors and non-executive directors in the company’s collapse."
The Commons committees have summoned former Carillion directors including Richard Howson, Keith Cochran, Philip Green and Zafar Khan to give evidence on 6th February 2018.
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