Accounting error adds £40 million to Kier Group debts

Global construction company Kier Group has announced it has an additional £40 million of debt, following an accounting error. The firm is currently audited by Big Four firm PwC, and has been hit by a period of sustained difficulties following a succession of share slides and the exit of its CEO at the start of the year.

The British construction sector has endured a tumultuous period of late. Starting with the surprise collapse of Leicester-based firm Carillion at the beginning of 2018, shockwaves ran through the outsourcing and construction sectors as a result. Capita saw its share value slump repeatedly, while the first quarter of the year saw Serco suffer a 3.9% fall, alongside G4S (-1.1%) and Interserve (-1.9%).

The Kier Group was also among the firms impacted, seeing a share slide in the first half of 2018 which it would spend the rest of the year working to recover from. The infrastructure services, buildings and developments and housing group bounced back, with recent key contract awards – including the renewal of a three-year £70 million utility services deal in the South West, and being appointed to three lots on the North West Construction Hub three-year, £1.5 billion framework.

The professional services firm saw a rocky start to 2019, however, with its CEO stepping down in January, following a coup in the construction company’s boardroom. Haydn Mursell, an accountant who began his career with KPMG, was ousted as the company allegedly sought to commence a new era of growth.

Since then, however, Kier has been thrown into further difficulties, with the construction firm having announced finding an extra £40.2 million of debt which was misclassified in an accounting error. The business, which is still without a permanent boss, has been forced to restate its total debt, which now sits at £180.5 million, having previously been sat at around £130 million.

In its last trading update, Kier said it had also “identified a number of adjustments” that totalled £10.3 million in relation to the group’s hedging activities. Share prices for Kier slid 13% after the news of the debt became public, compounding a miserable few months. In December 2018, shares in the business almost halved ahead of a plan to sell new shares to existing investors at a one-third discount, in an aim to cut back its then net debt of more than £600 million.

Audit failure

Kier Group is audited by Big Four firm PwC. With Kier’s interim results set to be published on the 20th of March, PwC will likely be under considerable scrutiny in view of the growing number of firms that have been hit hard by Big Four accounting errors. Earlier in March, Scottish five-a-side football firm Goals Soccer Centres saw its share price slump following its issue of a second profit warning in the wake of uncovered accounting errors which apparently occurred on KPMG’s watch, while PwC was criticised for alleged conflicts of interest at auditing client Staffline.

The news comes days after it was finally announced that the accounting regulator is to be abolished and replaced by a new "enhanced" body to tackle a fall in auditing standards in the UK. The decision to replace the Financial Reporting Council with the Audit, Reporting and Governance Authority – which will have new statutory powers and leadership – follows a damning review into the watchdog from Lord Kingman.

The new regulator will have powers to intervene directly and make changes to company accounts – instead of having to go to court – as well as the ability to regulate the biggest audit firms directly. At the same time, firms which fail to meet auditing standards will be hit by greater sanctions in the event of corporate collapses.