Carillion PLC’s (LON:CLLN) problems were magnified today after the Financial Reporting Council (FRC) said it has decided, following enquiries made since a profit warning in July 2017, to open an investigation in relation to KPMG's audit of the collapsed construction contractor’s financial statements.
In a statement, the FRC said the investigation will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017.
It added that the investigation will be conducted by the FRC's Enforcement Division, and will consider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors.
The regulator said several areas of KPMG's work will be examined including the audit of the company's use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts, and accounting for pensions.
The FRC added that it will conduct the investigation as quickly and thoroughly as possible.
It also said it is liaising closely with the Official Receiver, the Financial Conduct Authority, the Insolvency Service and The Pensions Regulator to ensure that there is a” joined-up approach to the investigation of all matters arising from the collapse of Carillion.”
Implied pension deficit rises
Separately, according to Parliament's Work and Pensions Select Committee, Carillion attempted to "wriggle out of its obligations" to pensioners for the last decade.
The influential committee’s chair, Frank Field, has condemned the firm’s inability to perform its pension obligations while "shelling out dividends and handsome pay packets for those at the top."
In a letter published on Monday by the committee and written by Carillion Pension Trustee Limited Chair Robin Ellison, it is implied that the scheme's deficit may be about £990mln compared to the £587mln figure quoted in an earlier letter.
Carillion entered compulsory liquidation on January 15 after the failure of talks over its debt mountain with financial and other stakeholders, including the UK government.
The firm - which issued three profit warnings in less than six months last year and saw its market value collapse by more than 90% - is a major supplier to the government with contracts across education, the NHS and the rail industry, including HS2.
Carillion shares have been temporarily suspended on the London Stock Exchange since that date.