KPMG auditors misled regulators during inspections of their work on the audits of outsourcers Carillion and Regenersis, the accounting firm’s British boss said.
The Financial Reporting Council has accused the Big Four firm and six of its former auditors of falsifying documents and misleading its inspectors while the British accounting watchdog opened its case before an industry tribunal on Monday.
The watchdog accused the firm and the six individuals of dishonesty and lack of integrity in their responses to FRC staff during routine quality inspections of the audits of Carillion’s financial statements for the year to December 2016 and Regenersis for the year to June 2014.
The case threatens to further damage the reputation of KPMG, which has stopped bidding for British government work after his involvement in a series of scandals, including misconduct in the sale of the bedmaker Silentnight, for which he was fined £ 13 million in August.
Jon Holt, CEO of KPMG in the UK, said in a media statement that it was “clear. . . misconduct and that our regulator has been misled ”.
“It’s unacceptable, we do not tolerate or condone it in any way, and I’m very sorry it happened in our firm,” he added.
Inspections evaluate the quality of auditors’ work, including by examining key judgment and whether auditors have obtained enough evidence to justify their conclusions.
With the opening of a trial, which is expected to last five weeks, lawyers for the FRC told some auditors at KPMG working on the accounts of Regenersis, a London-listed IT company that was later renamed Blancco Technology Group , created documents that were a “manufacture”. . It was then “handed over” as if it had been created earlier, before the audit was completed.
The FRC also alleged that the auditors created new documents during the inspection of the audit of Carillion’s accounts, including minutes of meetings related to international aspects of the audits.
The tribunal was shown an example where additions were made to a document in red font and an email from one of the auditors, Alistair Wright, to another, Pratik Paw, stating that they should “paste words” “in documents created earlier that year.
The individual defendants – Peter Meehan, the main partner on the Carillion audit, Wright, Richard Kitchen, Adam Bennett, Paw and Stuart Smith – each denied allegations of wrongdoing.
KPMG, which itself reported the alleged offense to the FRC, is a defendant because it would be substituting for any misconduct by its auditors. A settlement can generally not be agreed between the FRC and a firm accused of an offense if no individual has admitted to misconduct.
The FRC did not claim that KPMG’s audits of Carillion or Regenersis were flawed. It runs separate investigations about possible failures in the Carillion audits. Carillion’s liquidators are working on a £ 250 million claim for negligence against KPMG.
Carillion collapsed four years ago after receiving clean audit opinions. It had liabilities of £ 7bn and £ 29m in cash, sparking debate over British audit sector reform and boardroom regulation.
Lawyers referred to a possible settlement between Smith and the FRC during Monday’s proceedings, but details were not released. Upon inquiry by the Financial Times, Smith’s attorneys did not confirm whether he acknowledged wrongdoing as part of any settlement.
All six auditors named as defendants before the tribunal were initially suspended and have now left the firm, KPMG said.
The trial continues.