Investigators zero in on Carillion’s project reporting

The UK’s auditing watchdog, the Financial Reporting Council (FRC), says it will concentrate on how Carillion reported the financial performance of its major contracts after widening its probe in November.

Project reporting emerged as "a key area of focus", the FRC said last week (22 January) in an update on the investigation it has been carrying out since Carillion’s collapse in January last year.

It said it widened the scope of its investigation in November after Carillion’s long-time auditor KPMG volunteered new materials relating to the FRC’s review of KPMG’s audit of Carillion’s 2016 results.

"A key area of focus has been the financial performance of Carillion’s major contracts in both the construction and services divisions, and whether Carillion management and its auditors ensured that this was appropriately reported in its financial statements," the FRC said.

"The investigations are also considering conduct relating to pension liabilities, goodwill, cash disclosures and going concern.

"The FRC has obtained and is analysing very significant quantities of documents relating to these areas. Detailed interviews have been conducted with audit team members and Carillion senior executives and further interviews are planned for early 2019."

On 1 March 2017, Carillion published its 2016 accounts, portraying the company in good financial health. It paid a record dividend to shareholders of £79m and issued senior executives generous performance bonuses.

Four months later, on 10 July, the company shocked the market with an ominous profit warning, revealing that £845m had been wiped off the value of its contracts.

Last week KPMG confirmed it had suspended its partner who led on Carillion, Peter Meehan, and three other staff members, after finding issues of concern in documents submitted to the FRC for the watchdog’s Audit Quality Review of Carillion’s 2016 results.

The FRC is investigating KPMG’s audits of Carillion (2014-2017) and the conduct of two former finance directors, Richard Adam and Zafar Khan.

Image: Four months after its positive 2016 results, Carillion issued an ominous profit warning (Carillion)

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