The Financial Reporting Council (FRC) says it is investigating KPMG’s audit of financial statements by Carillion ahead of the company’s collapse.
The accounting watchdog said its inquiry would cover 2014, 2015 and 2016, and additional audit work carried out last year to determine if any relevant requirements had been breached.
The probe would span issues such as how the auditors recognised revenue on significant contracts and accounted for pensions, the FRC said.
Sky News reported last week how MPs examining Carillion’s demise had written to Bill Michael, the chairman of KPMG, which had signed off the company’s accounts last March, four months before it announced a massive profit warning triggered by an £845m writedown of the value of its contracts.
Video: Banks face £2bn of losses from collapse of HS2 contractor Carillion
A source told City Editor Mark Kleinman the letter to Mr Michael asked him to explain why the audit opinion on those contracts had changed and to clarify whether KPMG should have been more proactive in highlighting the risks arising from changes to accounting standards in Carillion’s 2016 annual report.
The MPs also challenged Mr Michael to explain why KPMG had allowed the construction group to rely on more than £1.57bn of goodwill to strengthen its balance sheet, the source added.
Carillion’s collapse, announced on 15 January, has threatened thousands of jobs and cast a huge shadow over the entire outsourcing sector.
The company held over 450 Government contracts when it plunged into compulsory liquidation – raising profound questions for ministers, lenders, shareholders and pension regulators.
The Commons Work and Pensions Committee, separately on Monday, has accused Carillion of trying to “wriggle out” of its obligations to pensioners while paying out tens of millions in dividends for shareholders and “handsome pay packets” for bosses.
The FRC said it made its decision to investigate KPMG following enquiries it had made since Carillion’s profit warning in July 2017.
The regulator added it was 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.”
A KPMG spokesman said: “As we have already commented, we believe that we conducted our role as Carillion’s auditor appropriately and responsibly.
“Transparency and accountability are vital in building public trust in audit.
More from Business
“We believe it is important that regulators acting in the public interest review the audit work related to high-profile cases such as Carillion.
“We will co-operate fully with the FRC’s investigation.”