KPMG fined £14.4m for Carillion audits

The Financial Reporting Council (FRC) has announced it has fined KPMG £14.4m for providing “false and misleading” information and documents to the regulator in relation to its Audit Quality Reviews of two Carillion audits completed by KPMG.

Following a five-week hearing at the beginning of the year, an independent Disciplinary Tribunal made the findings of Misconduct. Following a hearing in May 2022, sanctions were determined.

KPMG has admitted liability for the acts of all the individuals and also admitted that the acts were Misconduct.

Reflecting KPMG’s self-reporting, co-operation, and admissions, the fine has been reduced from £20m.

The FRC reported that KPMG has also been “severely reprimanded” and they have been ordered to appoint an independent reviewer to carry out a review of the effectiveness of KPMG’s current AQR policies and procedures in supporting high quality engagement with the AQR inspectors.

KPMG will also pay £3.95m towards Executive Counsel’s costs of the investigation together with the costs of the Tribunal.

Commenting on the importance of the AQR process and the seriousness of the Misconduct, the Tribunal said: “The seriousness of the Misconduct that we have found proved scarcely needs explanation. Effective audits are essential to the financial system. Management and investors should be able to rely on the audited financial reports of the company in question. The purpose of AQRs is to assess, and where appropriate suggest improvements to, the effectiveness of audits.

“The effectiveness of the regulation of auditors and audits depends on the accurate disclosure to the AQR Team of the audit work carried out by the auditor. Misleading the AQR undermines the effectiveness of its work; indeed, it may deprive the AQR of any useful result.”

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