KPMG confirms it will be investigated over the collapse of Carillion: ‘We are standing by the work that we did’

In the 2016 annual report, KPMG certified that Carillion was on a sound financial footing, and would be so until at least 2019. Its “viability statement” at the time said:

“We have nothing to report on the disclosures of principal risks:”

“Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:”

“− the Directors’ viability statement on page 31, concerning the principal

risks, their management, and, based on that, the Directors’ assessment

and expectations of the Group’s continuing in operation over the three

years to 2019; …”

Carillion’s board relied on KPMG’s certification to insist in the same annual report that the company could survive “extreme downside scenarios” over the coming three years:

“On the basis of both reasonably probable and more extreme downside scenarios, the Directors believe that they have a reasonable expectation that the Company will be able to continue in operation and meet its

liabilities as they fall due over the three-year period of their assessment.”

In a conversation at the World Economic Forum meeting in Davos, Switzerland, Richards told Business Insider that KPMG stands by its work. “What we did was we signed their audit which we are standing by. We recognise that the scale of disruption and attention this is getting from the media and indeed the situation that has evolved, means that we are going to be subjected to an inquiry by the FRC and we are absolutely embracing that and it’s the right thing to happen. But just to be very clear we are, we will completely comply with that, but as we stand here today we are standing by the work that we did,” she said.

Richards said KPMG also stood by the work the company did for Carillion in 2017, when it was asked to review the company’s existing contracts. KPMG looked at 58 contracts and found four that were troubling, according to the Financial Times.

“We are standing behind the work that we did, including the work we did around the original contracts,” Richards said. “There is an investigation being conducted and we’ll comply fully with that investigation, at this moment.”

Companies go bankrupt all the time, of course. And all publicly traded companies have auditors. So it is fairly common for auditors to find themselves asking questions when one of their clients goes to the wall. It is likely that in any inquiry KPMG will argue that it is only able to look at the financial history of a company. It doesn’t have a crystal ball allowing it to see the future. In Carillion’s case, its contracts extended over periods of years or decades, and the company was required to bear the cost of construction delays or make good when flaws were found in buildings. KPMG was not in control of the many variables affecting Carillion’s business, Richards said.

“We take our responsibility to the capital markets and to all the stakeholders incredibly seriously. So I don’t want to diminish the seriousness, we take all that but I would say to you that clearly the Carillion situation … has a number of factors that will contribute to an end result and I don’t have intimate knowledge of the all the factors that have ended up with the result that we are now seeing here,” she said.