Raymond Doherty 31 Jan 2018 12:40pm

KPMG chairman defends "proper" Carillion audit

Bill Michael, KPMG UK chairman, says, “we conducted a proper audit” on collapsed Carillion
Caption: KPMG has audited Carillion since 1999

Michael, speaking exclusively to economia, said the Big Four firm welcomed an investigation “so lessons can be learned by all the stakeholders.”

The collapse of Carillion has again raised questions about the value of audit, given it was given a pretty clean bill of health by KPMG in March 2017.

The Financial Reporting Council launched an investigation into KPMG, which has been Carillion’s auditor since its inception in 1999, this week.

The regulator said its decision to investigate the Big Four firm followed enquiries made since a profit warning in July last year, and will cover the years of 2014, 2015 and 2016 and additional audit work carried out in 2017.

Carillion filed for compulsory liquidation earlier this month after talks with potential lenders failed, putting thousands of jobs and businesses at risk.

Michael argues that the public anger at auditors in a case such as this is partly due to the expectation gap between what an audit does and “what investors and the public want it to do.”

He said he understands those who criticise KPMG’s claim that Carillion was strong enough to keep going for at least another three years.

“Yes, I can understand and have empathy for where they coming from, but it’s worth remembering that there were a series of risks referred to in the annual report which are directly relevant to viability.

“The board has to make decisions on the likelihood of these risks coming to fruition and their ability to manage them. They make these judgments in real-time, based on information available at that time, yet the decisions are normally only questioned when something goes wrong, which is always with the inevitable benefit of hindsight.”

The chairs of two select committees have written to the Big Four for explanation of their work with Carillion, asking for detailed accounts of all services the firms provided to the construction company and the fees received.

You can read the full interview with Michael here.