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Carillion auditor KPMG censured by FRC
20 June 2018
KPMG has been singled out by the Financial Reporting Council in a report critical of the quality of auditing in the UK.
KPMG, the auditor of Carillion, the construction services company that collapsed in January, was criticised for “unacceptable deterioration” in its audit work. The FRC has introduced special measures to put the Big 4 firm under increased scrutiny.
KPMG was told that it must hand over more of its audit files to the regulator for review, and that some of its worst audits would be referred for further review, which could lead to disciplinary action.
The regulator demanded that it hand over 25% more of its audits for review. The council looks at 23 a year at present, and the increase will make the firm the most monitored among the Big Four. PWC, which has the largest number of clients, submits 28 audits a year.
KPMG blamed its previous management for its poor auditing work in its submissions to the report, which was published two days early after its findings were leaked to the press. The regulator also had to publish its report into PWC’s audits of BHS two days early last week after that was also leaked.
“At a time when public trust in business and in audit is in the spotlight, the Big 4 must improve the quality of their audits and do so quickly,” Stephen Haddrill, chief executive of the FRC, said. “Firms must strenuously renew their efforts to improve audit quality to meet the legitimate expectation of investors and other stakeholders.”
The FRC has faced increasing pressure to scrutinise the Big 4 after years of criticism that the regulator has been too close to the accountancy. Recently, the regulator handed out its largest penalty in history, fining PWC £6.5 million for its audits of BHS.
The regulator is facing an independent inquiry into its effectiveness, commissioned by parliament. The review, which will conclude by the end of the year, is expected to lead to an overhaul of the way that the regulator operates.
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