In a statement following the news that PwC had been appointed as liquidators to the company, the FRC said: ‘We have been actively monitoring this situation for some time in close consultation with other relevant regulatory bodies.

‘We have powers to investigate the circumstances relating to the audit of Carillion as well as the actions of the relevant accounting professionals.

‘We are obliged to follow due process and will make a further statement on this matter shortly.’

KPMG has been the external auditor to Carillion since 1999, and was paid £1.4m in audit fees last year, according to the 2016 annual report and accounts. Deloitte acts as the company’s internal auditor under an outsourcing arrangement.

In the 2016 annual report, released on 30 June 2017, the audit committee stated: ‘Given the nature of the group’s activities, revenue and margin recognition continues to be a key area of judgment for management.

‘A significant proportion of the committee’s time is spent reviewing contract judgments given the group’s extensive portfolio of contracts. The committee reviewed, through discussions with management and the external auditor, the positions and judgments taken by management on a number of material contracts across the group, including the impact on working capital performance.

‘The committee also reviewed the basis of the judgment adopted by management in relation to £20m of licencing income recognised during 2016. On the basis of these discussions, the committee concluded that the positions and judgements taken in relation to the contracts reviewed and the licence income recognised were reasonable.

‘The committee has also continued to monitor the overall management of cash flows and working capital, in particular receivables and payables, as these are key areas of importance in relation to the group’s financial performance.’

In the same annual report, a confident viability statement highlighted no forward risks, stating: ‘On the basis of both reasonably probable and more extreme downside scenarios, the directors believe that they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment’. 

KPMG response

In a statement KPMG said the firm would ‘co-operate fully’ with any FRC inquiry, and said its audits for Carillion had been conducted ‘appropriately and responsibly’. It added that its accountants had been involved in uncovering the shortfalls in company finances last summer.

A spokesman said: ‘We recognise that it is important that regulators acting in the public interest review high profile cases and will of course cooperate fully with any enquiries that the FRC or other regulatory agencies may make.’

Last summer, Carillion issued a surprise profit warning and delayed the publication of its half yearly results. In September Zafar Khan, group finance director, left the company with immediate effect, and EY partner Emma Mercer was appointed chief financial officer.

At the beginning of this year, Carillion revealed it had been notified that the Financial Conduct Authority (FCA) ‘has commenced an investigation in connection with the timeliness and content of announcements made by Carillion between 7 December 2016 and 10 July 2017,’ and that the company is ‘cooperating fully with the FCA.’

During the time period cited, Carillion published a full-year trading update, its result for 2016, a statement on its annual general meeting and a trading update on the first half of 2017.

Report by Pat Sweet