Editing KPMG (section)

===Carillion audit role===
In January 2018, it was announced that KPMG, auditor of collapsed UK construction firm [[Carillion]], would have its role examined by the [[Financial Reporting Council]],<ref>{{cite news|url=https://www.telegraph.co.uk/business/2018/01/15/carillion-auditor-kpmg-faces-scrutiny-approving-books-months/ |archive-url=https://ghostarchive.org/archive/20220111/https://www.telegraph.co.uk/business/2018/01/15/carillion-auditor-kpmg-faces-scrutiny-approving-books-months/ |archive-date=11 January 2022 |url-access=subscription |url-status=live|title=Carillion auditor KPMG faces scrutiny for approving books months before collapse|date=15 January 2018|newspaper=The Telegraph|access-date=20 January 2018}}{{cbignore}}</ref> (FRC) and it was summoned to give evidence before two House of Commons select committees on 22 February 2018.<ref>{{cite web|url=https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/carillion-big-four-17-19/|title=Committees publish responses from Big Four on Carillion|publisher=UK Parliament|date=13 February 2018|access-date=13 February 2018}}</ref>

On 13 February 2018, the 'Big 4' accountancy firms, including KPMG, were described by MP [[Frank Field (British politician)|Frank Field]] as "feasting on what was soon to become a carcass" after collecting fees of £72m for Carillion work during the years leading up to its collapse.<ref name="Davies-13Feb2018">{{cite news|last1=Davies|first1=Rob|title=Carillion: accountants accused of 'feasting' on company|url=https://www.theguardian.com/business/2018/feb/13/carillion-accountants-accused-of-feasting-on-company|access-date=13 February 2018|work=Guardian|date=13 February 2018}}</ref> KPMG was singled out for particular criticism for signing off Carillion's last accounts before a profit warning in July 2017: "Either KPMG failed to spot the warning signs, or its judgement was clouded by its cosy relationship with the company and the multimillion-pound fees it received," said MP [[Rachel Reeves]].<ref name="Davies-13Feb2018" /> Two out of three former Carillion finance directors had also worked for KPMG.<ref name="Davies-13Feb2018" />

KPMG defended itself, saying that in the construction industry "an accumulation of adverse events [...] can quite quickly cause a precipitous decline." KPMG chairman and senior partner Bill Michael said: "It does not follow automatically from a company collapse either that the opinion of management was wrong, or that the auditor did a bad job."<ref name="Davies-13Feb2018" />

On 22 February 2018, MPs contested evidence from KPMG (in one exchange MP [[Peter Kyle (politician)|Peter Kyle]] told KPMG partner Peter Meehan: "I would not hire you to do an audit of the contents of my fridge").<ref name="Marriage-22Feb2018">{{cite news|last1=Marriage|first1=Madison|title=MPs turn fire on KPMG and Deloitte partners over Carillion|url=https://www.ft.com/content/71c8f2b8-17d7-11e8-9e9c-25c814761640 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/71c8f2b8-17d7-11e8-9e9c-25c814761640 |archive-date=10 December 2022|access-date=22 February 2018|work=Financial Times|date=22 February 2018|url-access=subscription}}</ref> Rachel Reeves, chair of the business select committee, said:

<blockquote>Auditing is a multi-million-pound business for the Big Four. On this morning's evidence from KPMG and Deloitte, these audits appear to be a colossal waste of time and money, fit only to provide false assurance to investors, workers and the public. [...] Carillion staff and investors could see the problems at the company but those responsible – auditors, regulators, and, ultimately, the directors – did nothing to stop Carillion being driven off a cliff.<ref name="ParlUK-22Feb2018">{{cite web|title=Carillion audits – colossal waste of time and money|url=http://www.parliament.uk/business/committees/committees-a-z/commons-select/business-energy-industrial-strategy/news-parliament-2017/carillion-tpr-17-191/|website=Parliament.uk|access-date=22 February 2018|archive-date=22 February 2018|archive-url=https://web.archive.org/web/20180222230112/http://www.parliament.uk/business/committees/committees-a-z/commons-select/business-energy-industrial-strategy/news-parliament-2017/carillion-tpr-17-191/|url-status=dead}}</ref></blockquote>

The final report of the Parliamentary inquiry into Carillion's collapse, published on 16 May 2018,<ref name="Davies-16May2018">{{cite news|last1=Davies|first1=Rob|title='Recklessness, hubris and greed' – Carillion slammed by MPs|url=https://www.theguardian.com/business/2018/may/16/recklessness-hubris-and-greed-carillion-slammed-by-mps|access-date=16 May 2018|work=Guardian|date=16 May 2018}}</ref> criticised KPMG for its "complicity" in the company's financial reporting practices:

<blockquote>KPMG audited Carillion for 19 years, pocketing £29 million in the process. Not once during that time did they qualify their audit opinion on the financial statements, instead signing off the figures put in front of them by the company's directors. Yet, had KPMG been prepared to challenge management, the warning signs were there in highly questionable assumptions about construction contract revenue and the intangible asset of goodwill accumulated in historic acquisitions. These assumptions were fundamental to the picture of corporate health presented in audited annual accounts. In failing to exercise—and voice—professional scepticism towards Carillion's aggressive accounting judgements, KPMG was complicit in them. It should take its own share of responsibility for the consequences.<ref name="Carillion report conclusion">{{cite book|title=Carillion: Second Joint report from the Business, Energy and Industrial Strategy and Work and Pensions Committees of Session 2017–19|url=https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf|date=2018|publisher=House of Commons|location=London|pages=90–91|access-date=16 May 2018|archive-date=3 December 2020|archive-url=https://web.archive.org/web/20201203151433/https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf|url-status=dead}}</ref></blockquote>

The select committee chairs (Frank Field and Rachel Reeves) called for the government to overhaul its  corporate governance system, saying the government "lacked the decisiveness or bravery" to do so, and described the big four accounting firms as operating as a "cosy club". with KPMG singled out for its "complicity" in signing off Carillion's "increasingly fantastical figures".<ref name="Davies-16May2018"/>

KPMG said:
<blockquote>We believe we conducted our audit appropriately. However, it's only right that following a corporate collapse of such size and significance, the necessary investigations are performed. Auditing large and complex businesses involves many judgments and we will continue to cooperate with the FRC's ongoing investigation. ... We welcome any future review of our profession. If we consider how the profession has changed in the last decade […] it is clear there is a need for us to look closely at our business models.<ref name="Davies-16May2018"/></blockquote>

In a June 2018 report on audit standards across eight accounting firms, the FRC identified "failure to challenge management and show appropriate scepticism across their audits." It highlighted a decline in the quality of work undertaken by the Big Four, with KPMG performing the worst. There had, the FRC said, been an "unacceptable deterioration" in the quality of KPMG's work, and the FRC would scrutinise KPMG more closely as a result.<ref name="Davies-18Jun2018">{{cite news |last1=Davies |first1=Rob |title=KPMG singled out in critical report on audit industry |url=https://www.theguardian.com/business/2018/jun/18/kpmg-singled-out-in-critical-report-on-audit-industry |access-date=19 June 2018 |work=Guardian |date=18 June 2018}}</ref> In October 2018, the FRC proposed reforms to tackle the "underlying falling trust in business and the effectiveness of audit," and severely rebuked KPMG.<ref name="Collinson-8Oct2018">{{cite news |last1=Collinson |first1=Patrick |title=Accounting watchdog could ban auditors from consultancy work |url=https://www.theguardian.com/business/2018/oct/08/accounting-auditors-consultancy-frc-kpmg |access-date=8 October 2018 |work=Guardian |date=8 October 2018}}</ref>

In November 2018, KPMG said it would no longer undertake consultancy work for [[FTSE 350 Index]]-listed companies if it was also auditing them, in an effort to "remove even the perception of a possible conflict" of interest.<ref name="BBC-09Nov2018">{{cite news |title=KPMG stops consultancy for audit clients |url=https://www.bbc.co.uk/news/business-46145219 |access-date=9 November 2018 |work=BBC News |publisher=BBC |date=9 November 2018}}</ref>

The Carillion investigation followed FRC investigations into KPMG's role at [[HBOS]], Quindell and [[The Co-operative Bank]]. In July 2018, the FRC started an investigation into KPMG's audit role at collapsed drinks merchant [[Bargain Booze|Conviviality]].<ref name="Vincent-3Jul2018">{{cite news |last1=Vincent |first1=Matthew |title=Opening Quote: KMPG audit probed . . . again |url=https://www.ft.com/content/99604c5a-7e8d-11e8-bc55-50daf11b720d |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/99604c5a-7e8d-11e8-bc55-50daf11b720d |archive-date=10 December 2022 |url-status=live |access-date=3 July 2018 |work=Financial Times |date=3 July 2018|url-access=subscription}}</ref>

In January 2019, KPMG announced it had suspended the partner that led Carillion's audit and three members of his team;<ref name="Morby-21Jan2019">{{cite news |last1=Morby |first1=Aaron |title=KPMG suspends Carillion's lead auditor |url=http://www.constructionenquirer.com/2019/01/21/kpmg-suspends-carillions-lead-auditor/ |access-date=21 January 2019 |work=Construction Enquirer |date=21 January 2019}}</ref> in August 2021, an FRC disciplinary panel was scheduled for 10 January 2022 to hear a formal complaint against KPMG and former KPMG partner Peter Meehan regarding the provision of allegedly false and misleading information concerning the 2016 Carillion audit.<ref name="TCI-01Sep2021">{{cite news |title=Carillion auditor faces disciplinary tribunal |url=https://www.theconstructionindex.co.uk/news/view/carillion-auditor-faces-disciplinary-tribunal |access-date=1 September 2021 |work=The Construction Index |date=1 September 2021}}</ref> The tribunal convened to hear the formal complaint started on 10 January 2022.<ref>{{Cite news|last=O'Dwyer|first=Michael|date=September 1, 2021|title=KPMG accused of misleading regulator over Carillion audit|work=The Financial Times|url=https://www.ft.com/content/bdb7ab3c-12be-4641-99d4-31b80dc96283 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/bdb7ab3c-12be-4641-99d4-31b80dc96283 |archive-date=10 December 2022|url-access=subscription|access-date=November 29, 2021}}</ref>  At the disciplinary hearing, KPMG's UK chief executive Jon Holt said the firm had discovered misconduct by it staff in its own internal investigations, and immediately reported it to the FRC.<ref name="Morby-11Jan2022">{{cite news|last1=Morby|first1=Aaron|date=11 January 2022|title=KPMG admits financial regulator misled in Carillion audits|work=Construction Enquirer|url=https://www.constructionenquirer.com/2022/01/11/kpmg-admits-financial-regulator-misled-in-carillion-audits/|access-date=11 January 2022}}</ref> Following the FRC tribunal, KPMG was fined £14.4m (one of the biggest penalties in UK audit history) for misconduct relating to its audit of Carillion and another firm, and received a "severe reprimand" from the regulator. KPMG were also ordered to pay £3.95m in costs.<ref name="Prior-25Jul2022">{{cite news |last1=Prior |first1=Grant |title=KPMG fined £14.4m for Carillion audits |url=https://www.constructionenquirer.com/2022/07/25/kpmg-fined-14-4m-for-carillion-audits/ |access-date=26 July 2022 |work=Construction Enquirer |date=25 July 2022}}</ref> The tribunal heard allegations that KPMG staff created false meeting minutes and retroactively edited spreadsheets before sharing them. A further tribunal will consider penalties for individual KPMG staff, including partner Peter Meehan; the FRC recommended that he be banned for 15 years and fined at least £400,000.<ref name="Gayne-16May2022">{{cite news |last1=Gayne |first1=Daniel |title=KPMG to pay £14.4m for misleading regulator on Carillion audit |url=https://www.building.co.uk/news/kpmg-to-pay-144m-for-misleading-regulator-on-carillion-audit/5117522.article |access-date=20 May 2022 |work=Building |date=16 May 2022}}</ref><ref name=Makortoff/> In July 2022, it was announced that he had been fined £250,000 and banned for ten years; three other former KPMG executives also received fines and lengthy bans.<ref name="TCI-26Jul2022">{{cite news |title=Carillion auditor KPMG receives record fine |url=https://www.theconstructionindex.co.uk/news/view/carillion-auditor-kpmg-receives-record-fine |access-date=26 July 2022 |work=The Construction Index |date=26 July 2022}}</ref> A junior member of KPMG staff, Pratik Paw—who, aged 25, had been the most junior member of the Carillion audit team—faced a "life changing" fine of £50,000 and a four-year ban, prompting critics to suggest that accounting firms should enable junior colleagues to challenge their superiors, so that low ranking workers are not blamed for accounting scandals.<ref name="Goss-20May2022">{{cite news |last1=Goss |first1=Louis |title=KPMG should take blame for Carillion scandal, not junior accountant Pratik Paw, critics say |url=https://www.cityam.com/kpmg-should-take-blame-for-carillion-scandal-not-junior-accountant-pratik-paw-critics-say/ |access-date=20 May 2022 |work=City AM |date=20 May 2022}}</ref><ref name="Pooley-18May2022">{{cite news |last1=Rutter Pooley |first1=Cat |title=KPMG's Carillion case should worry juniors across the City |url=https://www.ft.com/content/8bd9587b-e5df-4b68-a108-8bafeddc9669 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/8bd9587b-e5df-4b68-a108-8bafeddc9669 |archive-date=10 December 2022 |url-access=subscription |access-date=20 May 2022 |work=Financial Times |date=18 May 2022}}</ref> Ultimately, Paw was not fined or suspended but was severely reprimanded.<ref name="TCI-26Jul2022"/>

The FRC opened a second investigation into how KPMG audited Carillion's accounts.<ref name="Jones-22Jan2019">{{cite news|last1=Jones|first1=Huw|date=22 January 2019|title=KPMG subject of second UK investigation over Carillion audit|work=Reuters|url=https://uk.reuters.com/article/uk-carillion-accounts-regulator/kpmg-subject-of-second-uk-investigation-over-carillion-audit-idUKKCN1PG0L4|archive-url=https://web.archive.org/web/20190122075645/https://uk.reuters.com/article/uk-carillion-accounts-regulator/kpmg-subject-of-second-uk-investigation-over-carillion-audit-idUKKCN1PG0L4|url-status=dead|archive-date=22 January 2019|access-date=22 January 2019}}</ref> The FRC's first report, which found a number of breaches, was delivered to KPMG in September 2020; the FRC was awaiting a KPMG response before deciding whether to take enforcement action.<ref name="Nicolle-21Sep2020">{{cite news |last1=Nicolle |first1=Emily |title=UK watchdog to accuse KPMG of breaches in Carillion audit |url=https://www.cityam.com/uk-watchdog-to-accuse-kpmg-of-breaches-in-carillion-audit/ |access-date=21 September 2020 |work=City AM |date=21 September 2020}}</ref> In March 2021, KPMG was reported to be "inching towards a financial settlement with regulators" over its auditing of Carillion, with the FRC expected to impose a record fine, possibly around £25m, on KPMG for its failings.<ref name="Kleinman-18Mar2021">{{cite news |last1=Kleinman |first1=Mark |title=KPMG inches towards settlement with audit regulator over Carillion collapse |url=https://news.sky.com/story/kpmg-inches-towards-settlement-with-audit-regulator-over-carillion-collapse-12249933 |access-date=19 March 2021 |work=Sky News |date=18 March 2021}}</ref>

In May 2020, the ''FT'' reported that the Official Receiver was preparing to sue KPMG for £250m over alleged negligence in its audits of Carillion.<ref name="Kinder-12May2020">{{cite news|last1=Kinder|first1=Tabby|date=12 May 2020|title=KPMG faces £250m negligence lawsuit over Carillion|work=Financial Times|url=https://www.ft.com/content/3b10ca83-7818-46d5-b492-8c86857ebd33 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/3b10ca83-7818-46d5-b492-8c86857ebd33 |archive-date=10 December 2022|url-access=subscription|access-date=13 May 2020}}</ref> In May 2021, the liquidator secured funding for its legal action,<ref name="Price-21May2021">{{cite news|last1=Price|first1=David|date=21 May 2021|title=Carillion's liquidator gets funding for £250m legal claim|work=Construction News|url=https://www.constructionnews.co.uk/contractors/carillion/carillions-liquidator-gets-funding-for-250m-legal-claim-21-05-2021/|access-date=21 May 2021}}</ref> with speculation that the likely damages claim could be as much as £2 billion.<ref name="Booth-01Sep2021">{{cite news|last1=Booth|first1=James|date=1 September 2021|title=KPMG could face £2bn legal claim over Carillion collapse|work=Financial News|url=https://www.fnlondon.com/articles/kpmg-could-face-2bn-legal-claim-over-carillion-collapse-20210901|access-date=1 September 2021}}</ref> In February 2022, Sky News reported the Official Receiver's claim would be in the range of £1bn-£1.5bn, with one source suggesting around £1.2bn.<ref name="Sky-02Feb2022">{{cite news|last1=Kleinman|first1=Mark|date=2 February 2022|title=Carillion liquidator's claim against KPMG to seek over £1bn in damages|work=Sky News|url=https://news.sky.com/story/carillion-liquidators-claim-against-kpmg-to-seek-over-1bn-in-damages-12531256|access-date=3 February 2022}}</ref> The OR's negligence claim focuses on the value of major contracts which were not properly accounted for in audits in 2014, 2015 and 2016, resulting in misstatements in excess of £800m within Carillion's financial reports. KPMG was said to have accepted management explanations for inflated revenue and understated cost positions. The OR had received legal advice that KPMG was answerable to Carillion's creditors for a portion of their losses. KPMG said: "We believe this claim is without merit and we will robustly defend the case. Responsibility for the failure of Carillion lies solely with the company's board and management, who set the strategy and ran the business."<ref name="Prior-04Feb2022">{{cite news|last1=Prior|first1=Grant|date=4 February 2022|title=KPMG being sued for £1.3bn over Carillion audit|work=Construction Enquirer|url=https://www.constructionenquirer.com/2022/02/03/kpmg-being-sued-for-1-3bn-over-carillion-audit/|access-date=4 February 2022}}</ref> The claim, for £1.3 billion (US$1.77 billion), accused KPMG of missing "red flags" during audits of Carillion, in one of the largest claims against an audit firm.<ref>{{Cite news|last=Ridley|first=Kristin|date=February 3, 2022|title=KPMG sued for $1.8 bln over Carillion audits|work=Reuters|url=https://www.reuters.com/business/kpmg-sued-18-bln-over-carillion-audit-2022-02-03/|access-date=February 5, 2022}}</ref> In November 2022, the OR said: KPMG had "failed to respond" to Carillion allegations that it had failed to properly audit the accounting of 20 significant construction contracts. KPMG reiterated that Carillion's failure was solely the fault of the company's board and management.<ref name="Gerrard-28Nov2022">{{cite news |last1=Gerrard |first1=Neil |title=Carillion: Auditor 'failed to respond' to accusations of failings |url=https://constructionmanagement.co.uk/carillion-auditor-failed-to-respond-to-accusations-of-failings/ |access-date=29 November 2022 |work=Construction Management |date=28 November 2022}}</ref> In February 2023, ''[[The Guardian]]'' reported that KPMG had settled the £1.3bn lawsuit brought by Carillion's liquidators;<ref>{{cite news|url=https://www.theguardian.com/business/2023/feb/17/kpmg-pays-13bn-to-settle-negligent-auditing-claim-by-carillion-creditors | title=KPMG settles £1.3bn lawsuit from Carillion creditors over alleged negligence |first=Kalyeena|last=Makortoff|magazine=The Guardian|date=17 February 2023|access-date=17 February 2023}}</ref> details of the settlement were not made public.<ref name="CM-20Feb2023">{{cite news |title=KPMG settles Carillion lawsuit for undisclosed sum |url=https://constructionmanagement.co.uk/kpmg-settles-carillion-lawsuit-for-undisclosed-sum/ |access-date=21 February 2023 |work=Construction Manager |date=20 February 2023}}</ref>

In October 2023, the [[Financial Reporting Council]] fined KPMG UK £21 million, saying it had failed to follow "the most basic and fundamental audit concepts" and an "unusually large number of breaches" had been found. For three years before the collapse Carillion was not subject to reliable audits. KPMG UK will also pay legal costs of about £5.3 million. The previous year a £14.4m penalty had been imposed on KPMG UK for providing misleading information to the regulator.<ref name=guardian-20231012>{{cite news |url=https://www.theguardian.com/business/2023/oct/12/kpmg-fined-record-21m-over-carillion-audit-failures |title=KPMG boss says Carillion auditing was 'very bad' as firm is fined record £21m |last1=Kollewe |first1=Julia |last2=Makortoff |first2=Kalyeena |newspaper=The Guardian |date=12 October 2023 |access-date=12 October 2023}}</ref>