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News January 2018 Investigation into the audit of the financial statements of Carillion plc

Investigation into the audit of the financial statements of Carillion plc

29 January 2018
PN 2/18                                                                                       
                    
The Financial Reporting Council (FRC) has decided, following enquiries made since a profit warning in July 2017, to open an investigation under the Audit Enforcement Procedure in relation to KPMG’s audit of the financial statements of Carillion plc. The investigation will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017.

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 FRC will conduct the investigation as quickly and thoroughly as possible. 

The FRC is progressing with urgent enquiries into the conduct of professional accountants within Carillion in connection with the preparation of the financial statements and other financial reporting obligations under the Accountancy Scheme. 

The FRC is liaising closely with the Official Receiver, the Financial Conduct Authority, the Insolvency Service and The Pensions Regulator to ensure that there is a joined-up approach to the investigation of all matters arising from the collapse of Carillion.  

Notes to editors:

The Financial Reporting Council’s (FRC) mission is to promote transparency and integrity in business.  The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.

The FRC confirms that no member of the Conduct Committee declared an interest in relation to this decision.

In relation to enforcement matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest.To meet its responsibility as the competent authority in respect of audit enforcement, the FRC operates the Audit Enforcement Procedure.  This procedure applies to the investigation and sanctioning of breaches of the various requirements of the statutory auditors of Public Interest Entities (PIEs) and any other cases retained by the FRC including AIM companies with a market capitalisation in excess of €200m. 

In brief, the stages of the Audit Enforcement Procedure are:
  • Initial case examination and decision to investigate
  • Investigation
  • Decision by Executive Counsel as to whether to issue a Decision Notice (a notice with the findings and recommended sanction);
  • Referral to Enforcement Committee and decision by the Enforcement Committee whether to issue a Decision Notice; and
  • Referral to a Tribunal.
  • In order for a matter to be referred for investigation by the FRC’s Executive Counsel under the Audit Enforcement Procedure, the FRC’s Conduct Committee is required to decide whether there is good reason to investigate an Allegation in relation to a Statutory Auditor and/or a Statutory Audit Firm.

    Investigations are conducted by Executive Counsel and the Enforcement division.
 In brief, the stages of the disciplinary process under the Accountancy Scheme are:
  • Decision to investigate
  • Investigation
  • Decision whether to bring enforcement proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
  • Tribunal hearing
  • Determination and imposition of sanction and/or costs orders
Under the Accountancy Scheme the FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.

The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.

Investigations are conducted by Executive Counsel and the Enforcement division.
 

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