KPMG Slapped with £21 Million Fine Over Carillion Audit Failures

The Financial Reporting Council (FRC) in the United Kingdom has announced a £21 million ($26 million) fine against KPMG, one of the Big Four accounting firms, in connection with multiple shortcomings in its audit of the now-defunct construction giant Carillion. The company's collapse in 2018 had profound implications for the British economy, leading to a financial crisis.

Initially, the FRC sought to penalize KPMG with a £30 million fine, but this amount was subsequently reduced by 30% due to the firm's cooperation.

According to an official statement released by the FRC, an "exceptionally high number of breaches" of audit standards were identified, indicating that Carillion "did not undergo robust, comprehensive, and dependable audits in the three years leading up to its demise."

The FRC also imposed penalties on two former KPMG partners, Peter Meehan and Darren Turner, for their roles in what the FRC described as a flawed auditing process.

In response to the fine, KPMG UK's Chief Executive and Senior Partner, Jon Holt, acknowledged the deficiencies in their audit work on Carillion. Holt stated, "It is clear to me that our audit work on Carillion was very poor, spanning an extended period. In several aspects, some of our former partners and employees failed to perform their duties properly. Junior colleagues were let down by those who should have set a clear example, and I am disappointed and frustrated that this occurred within our firm."

Holt emphasized that KPMG has made significant improvements in controls and oversight within the organization since the Carillion audit. These measures aim to prevent similar failures from occurring in the present day. However, Holt also stressed that it is the responsibility of each individual at the firm to uphold the highest professional standards continually.

The fine against KPMG serves as a stern reminder of the vital role that auditing plays in maintaining the integrity and stability of financial markets. It underlines the accountability of auditing firms to conduct thorough and dependable audits to protect the interests of investors, clients, and the broader economy.