KPMG audited Carillion’s accounts the financial years 2014, 2015, and 2016 and each time signed them off as true and fair. In July and September 2017 Carillion announced expected provisions totalling £1.045 billion, primarily arising from expected losses on a number of its contracts, and a goodwill impairment charge of £134m. In January 2018 Carillion went into liquidation, becoming UK construction’s biggest ever corporate collapse.

Financial Reporting Council executive counsel Elizabeth Barrett said: “The credibility of reports and opinions issued by auditors in connection with financial statements depends upon beliefs concerning the integrity, objectivity and independence of auditors and the quality of the audit work performed.

“The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit. This is reflected in the financial sanction imposed on KPMG LLP, the highest ever imposed by the FRC.

“Many of the breaches involve failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain sufficient appropriate audit evidence. The breaches in relation to the 2016 audit even include failing to ensure that the audit process itself was properly managed and that the audit file was a reliable record. These requirements lie at the heart of proper auditing.

“The seriousness of the failings in the 2016 audit is compounded by the breaches of the Ethical Standards relating to the fundamental principles of objectivity, independence, and integrity.”

Jon Holt, chief executive and senior partner of KPMG in the UK, said: “It is clear to me that our audit work on Carillion was very bad, over an extended period… Since this audit work was undertaken, we have done an enormous amount to improve controls and oversight across our firm, to ensure that these failings could not take place today.”

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