Partner who led KPMG’s audit of Carillion leaves Big Four firm

The partner who led KPMG’s audit of Carillion, the collapsed government contractor, has left the Big Four firm as the UK accounting regulator’s investigation into the scandal reaches an advanced stage.

Peter Meehan was suspended by KPMG in January 2019, along with three other members of staff, after an internal investigation raised concerns over information provided to the Financial Reporting Council for its annual review of audit quality.

Meehan left KPMG on January 31, according to a corporate filing published on Wednesday. Lawyers for Meehan did not immediately respond to a request for comment. KPMG declined to comment.

The FRC is conducting a long-running probe into KPMG’s role in the collapse of Carillion. The auditor gave the outsourcing giant’s accounts a clean bill of health just nine months before it collapsed in January 2018, owing more than £1.3bn to its banks, with a pension deficit of about £800m and just £29m in cash on its balance sheet.

In a parallel investigation, the FRC is also examining whether audit files provided by the Carillion audit team to the regulator may have been deliberately backdated.

A person close to the situation said it was likely that KPMG had agreed the financial and legal terms of an exit from the partnership with Meehan, ahead of a potentially damning decision by the FRC.

“KPMG is motivated to close down as much as possible early on,” the person said. “They may use his departure as a way of getting ahead of any FRC decision.”

In August, the accounting watchdog handed KPMG its long-awaited initial investigation report into potential breaches of professional standards during its audit of Carillion’s accounts in 2014, 2015 and 2016, along with additional work during 2017. In February, it delivered a second report on its findings relating to the 2013 audit. None of the findings of the investigation have yet been made public.

Industry executives expect that a finding of misconduct against KPMG could result in a major fine for the firm, potentially eclipsing the £15m penalty imposed on Deloitte last year over its audit of Autonomy, the former FTSE 100 software firm.

If KPMG does not agree a settlement with the FRC, it is likely to face a tribunal to determine any wrongdoing by the firm or its auditors, and the size of any fine.

The FRC’s investigations are part of the wider legal and regulatory fallout from Carillion’s downfall.

The government launched legal proceedings in January seeking to ban eight of its former directors from taking up similar roles for up to 15 years.

The Financial Conduct Authority found in November that Carillion and some of its former directors recklessly misled markets as the outsourcer’s finances deteriorated. 

KPMG is also facing a £250m negligence suit by the UK’s official receiver, the public official charged with liquidating Carillion.

Meanwhile the firm is under investigation by the FRC for its audits of companies in the Rolls-Royce group between 2010 and 2013 and its work on the 2017 financial statements of Conviviality, the owner of Bargain Booze, which went into administration in 2018.