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Carillion-KPMG suit latest: "Any reasonably competent auditor would have detected misstatements"

The Official Receiver has filed its reply to KPMG’s defence in the ongoing £1.3bn legal battle over the latter’s auditing of failed construction group Carillion.

A Carillion spokesperson said: “The Official Receiver is pursuing this claim in the interests of creditors who lost substantially in the liquidation. Carillion’s reply [to KPMG’s defence] responds to contentions made in KPMG’s defence, as well as stating that in some notable instances, KPMG has failed to respond to material aspects of Carillion’s case. In particular, KPMG failed to respond to Carillion’s allegations in respect of KPMG’s failure to properly audit the accounting of 20 significant construction contracts, including multi-million pound contracts such as the Battersea Power Station and the Msheireb Downtown Doha project in Old Doha, Qatar. Carillion claims that the value of these two contracts alone in the year ending 2016 was misstated by £351.9m, and that had KPMG acted as a reasonably competent auditor, it would have detected these misstatements (amongst others).

“Notably, since Carillion filed its particulars of claim, following an investigation by the Financial Reporting Council (FRC), the independent Disciplinary Tribunal also made findings of misconduct by KPMG and (amongst others) Mr Peter Meehan, the partner responsible for KPMG’s audit of Carillion, in relation to the provision of false and misleading information and documents in connection with the FRC’s Audit Quality Review of KPMG’s audit of Carillion. Carillion’s reply also relies on certain evidence relied on in those proceedings.”

Carillion went into liquidation with £29m of cash and liabilities of nearly £7bn. This included a pension liability of around £2.6bn. Carillion also owed around £2bn to 30,000 suppliers, subcontractors and other short-term creditors.

In March 2017, Carillion reported underlying profit from operations of £236m for the 2016 financial year. But in July and September 2017, Carillion announced total write-downs of £1.045bn, a sum equivalent to the previous seven years’ profits combined. The write-downs exceeded the market capitalisation of Carillion and are amongst the largest in UK corporate history.

KPMG was Carillion’s auditor for 19 years, earning a total of £29m for its audit work. Over that period, the firm never qualified its audit opinion.

The Official Receiver, as Carillion’s liquidator, is obliged to investigate the causes of the company’s failure. It also has a duty under the Insolvency Act to realise the company’s assets for the benefit of creditors.

A KPMG UK spokesperson 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.”

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