The accountancy watchdog is to open an investigation into accountancy giant KPMG over its audits of collapsed construction giant Carillion.
The Financial Reporting Council (FRC) said on Monday that, following inquiries made since Carilion’s profit warning in July, it will open an investigation under the Audit Enforcement Procedure.
The probe will cover the years ended 2014, 2015 and 2016, and additional audit work carried out during 2017.
It comes as Carillion was accused of trying to “wriggle out” of its obligations to pensioners while paying out tens of millions in dividends for shareholders and “handsome pay packets” for bosses.
The Commons Work and Pensions Committee criticised the collapsed outsourcing giant after publishing a letter from Robin Ellison, chairman of trustees of Carillion’s pension scheme, which gives an account of the firm’s pension scheme.
Carillion’s liquidation left in its wake a £900 million debt pile, a £590 million pension deficit reported by the firm, and hundreds of millions of pounds in unfinished public contracts.
The FRC 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.
KPMG’s 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 will all come under the FRC’s microscope.
The FRC also pledged to conduct the investigation “as quickly and thoroughly as possible”.
“The FRC is progressing with urgent inquiries 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,” the FRC said.
Meanwhile, Shadow Pensions Minister Jack Dromey told the BBC’s Today Programme that the “system of oversight” of the Carillion pension scheme failed while it was a “bonanza” for the board and shareholders.
He called for a “fundamental reform” of pensions and for the trustees to be “called to account” for 28,000 workers “paying the price with their jobs, and many of them, now with their pensions”.
Pensions analyst Tom McPhail from Hargreaves Lansdown told the programme that “in all likelihood” pensions would be cut by 10%, there’d be no inflation proofing, and higher earners would be affected by a pay cap of around £35,000 on maximum payouts.
McPhail said the Carillion pension issues “looks more to me like a failure of corporate governance” rather than there being a lack of pension scheme oversight, given trustees had repeatedly challenged the company.
“The challenge for the pensions regulator in this... and I’m sure they will have to answer this question... in this situation, how much pressure should they bring to bear on the company because there is always this tension between the company and the shareholders”.