KPMG faces potential lawsuit regarding Carillion audit

12 August 2019 3 min. read
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Following the collapse of Carillion at the start of 2018, Big Four professional services firm KPMG has been under sustained scrutiny from UK regulators, the press and even Parliament. Now, the firm has learned that it faces a potential legal challenge led by law firm Quinn Emanuel, which could be lodged as early as the turn of the year.

Carillion, a British professional services firm which provided facilities management and construction services to the UK public sector, entered liquidation in early 2018, costing almost 30,000 jobs and jeopardising the delivery of a number of keystone services. According to Carillion’s website, the outsourcer was also “one of the largest providers of facilities management to the NHS”, employing about 8,000 people in the healthcare division, while managing 200 operating theatres, with 300 critical-care beds and just under 11,500 in-patient beds.

The company, headquartered in Wolverhampton, ran up unsustainable debts totalling around £1.5 billion, and issued three profit warnings over 2017 as a result. In the midst of this, KPMG, which was already auditor for the company, was asked for the additional provision of a strategic review, as the UK construction group battled to rebalance its finances. The report featured a focus on cutting costs including wages, and collecting more cash from contracts.

KPMG faces potential lawsuit regarding Carillion audit

Due to KPMG’s involvement in the firm as it collapsed, the Financial Reporting Council launched an investigation into KPMG’s audit of the financial statements of Carillion for the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017. The investigations into the preparation, approval and audit of the financial statements of Carillion to include certain matters relating to the financial statements were extended at the start of the year.

In the meantime, it has been announced that KPMG now faces the threat of a legal challenge from the UK agency tasked with unwinding Carillion, the outsourcer that collapsed last year, over allegations that the Big Four accountancy group’s audit of the company was negligent. According to reports from the Financial Times, Quinn Emanuel, a US-headquartered law firm, has been hired to pursue a legal case by the official receiver, a civil servant employed by the Insolvency Service on behalf of Carillion’s creditors, and PwC, who managed Carillion’s liquidation, according to two sources close to the firm.

Quinn Emanuel – which is also representing UK consumers in a high-profile class action pursuing £14 billion in damages from Mastercard for alleged illegal credit card fees – is understood to have appointed barristers while preparing to notify KPMG that it plans to file claims at the High Court. Once submitted, KPMG will have three months to respond to the firm’s letter, meaning a claim could be filed as early as the start of 2020. Should it be filed, it would become one of only a few public legal cases brought against Britain’s largest audit firms by the administrators or liquidators of failed businesses.