KPMG on trialFriday, January 14, 2022
Six months after KPMG LLP, one of the globe's largest accounting firms, was sanctioned for deficiencies, it is again back in the regulator's crosshairs as they re-examine the failure of outsourcing company Carillon.
On Monday, January 10, a tribunal hearing began before the UK Financial Reporting Council (FRC), which regulates auditing. The hearing is intended to investigate KPMG and six of its former employees who audited Regenersis in 2015, and Carillion in 2017. In 2018, Carillion collapsed.
Regenerisis is an IT company and Carillion is a British-based multinational construction firm.
KPMG auditors are accused of various degrees of involvement in the plot to hoodwink the regulators. The FRC opened its probe in November 2018 after KPMG had self-reported certain matters relating to the review of the 2016 Carillion audit.
On Monday, KPMG admitted to misconduct, confessing to misleading regulators during spot checks of its audits. The disciplinary tribunal saw Jon Holt, chief executive of KPMG, stating that KPMG had misled the regulator.
He told the court, “We became aware of the misconduct at the centre of this case as a result of our own internal investigations and immediately reported it to our regulator. We have cooperated fully with their investigation since then.”
KPMG, along with six of its former auditors, are accused by the FRC of creating the scheme to forge documents and misdirect a regulatory review of the audits of Carillion and Regenersis.
The FRC alleged that “relevant individuals acted with a lack of integrity in dishonestly or recklessly misleading the regulator”, according to tribunal documents.
“It is of course for the tribunal to reach a conclusion on the allegations as they relate to the individuals concerned. Nevertheless, it is clear to me that misconduct has occurred and that our regulator was misled,” Holt said. “We will assist the tribunal in any way we can, as we have cooperated fully with the investigation into these matters,” he added.
Holt said he was “very sorry” for the misconduct and said “we do not tolerate or condone it in any way”.
The hearing is expected to last for some weeks until the tribunal decides whether to uphold or reject the FRC allegations.
Testimony to be reviewed include that of staff who have admitted to falsifying documents relating to the audit of a collapsed outsourcer. Six months ago, in 2021, the United Kingdom FRC sanctioned KPMG LLP over the quality of its banking audits which UK 's industry regulator said was “unacceptable.”
In the latest episode, tribunal judges will closely examine the allegation that KPMG submitted fabricated documents to regulators during the auditing of the firm which collapsed in 2018.
Audit experts, a report published at www.accountingweb.co.uk on January 12, 2022, said the level of misconduct is “uniquely damaging to the industry and have called for the firm to be broken up, with criminal sanctions for those found guilty of such misconduct.”
Some onlookers have blamed the UK Government for failing to take action against delinquent accounting firms, hinting at corruption.
One analyst quoted by accounting.co.uk said, “Big Four accounting firms charge vast fees for delivering dud [audits]. Firms are rewarded with government contracts. Reforms have been abandoned. Corrupt practises flourish.”
In one report in the UK Guardian newspaper, analysts said, “The government has been accused of failing to learn any lessons from the collapse of the outsourcing giant Carillion two years ago, when more than 3,000 jobs were lost and 450 public sector projects including hospitals, schools and prisons were plunged into crisis.”
Gail Cartmail, trade union Unite's assistant general secretary, was quoted as stating that the UK's accounting and audit system was “clearly not fit for purpose.” He, according to the Guardian, accused the Government of failing to demand reforms because it “has many friends among the major accountancy firms”.
The upshot of the current tribunal might be the loss of KPMG's licence, but that remains to be seen.