ACCOUNTING

KPMG, other Big Four firms face questions about bankrupt UK construction and outsourcing firm

The UK Parliament is going to ask "serious questions" of KPMG about the collapse of Carillion, Britain’s second largest construction and outsourcing company that declared bankruptcy in January as it struggled with more than £2 billion (US$2.8 billion) in debt.

“KPMG has serious questions to answer about the collapse of Carillion,” said Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee. "Either KPMG failed to spot the warning signs, or its judgement was clouded by its cozy relationship with the company and the multi-million pound fees it received.”

Other Big Four firms are also coming under the microscope as it emerged that Deloitte, EY, KPMG and PwC had been collectively paid £71 million since 2008 on work related to Carillion. KPMG earned £29.4 million as the firm’s external auditor since Carillion’s founding in 1999.

KPMG gave an unqualified opinion on Carillion’s 2016 accounts and certified its viability statement, saying it was strong enough to survive for at least three years. Three months later, Carillion said it had overestimated revenues, cash and assets, causing its stock price to crash. It declared bankruptcy on January 15 this year.

KPMG said it will attend a parliamentary inquiry on February 22. “We are committed to building public trust in audit. We take the questions that have been asked of our profession in recent weeks very seriously and we welcome the opportunity to appear before the joint committee,” it said in a statement.

According to Reuters news agency, Frank Field, a Labor Party MP who chairs the Work and Pensions Committee, said it was “telling” that PwC had to be appointed to liquidate Carillion. The liquidation units of the other Big Four firms would have had immediate conflicts of interest.

“All of them did extensive – and expensive – work for Carillion,” he said. “The image of these companies feasting on what was soon to become a carcass will not be lost on decent citizens.”

Like the other Big Four firms, KPMG in the UK is owned and managed independently of other member accounting firms in other geographies in the network. But it shares a common name, brand and quality standards with others in the network, so member firms in Asia could experience some fallout from clients and regulators from the Carillion scandal as well.

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