The role of KPMG and Deloitte as external and internal auditor respectively of failed giant construction company Carillion came under heavy scrutiny by UK MPs during a Committee hearing.
Deloitte internal audit partner Michael Jones and KPMG audit partners Peter Meehan and Michelle Hinchliffe were asked why their firms did not detect or act on warning signs of the company’s demise.
It was, at times, a frustrating session for the select committee, who often highlighted the auditors’ inaction, but failed in getting any convincing answers from the professionals who managed, for most part, to remain off the hook.
Some of the exchanges did provide for good sound bites with Peter Kyle, MP for Hove saying that he wouldn’t trust KPMG to conduct an audit of the contents of his fridge.
Deloitte’s Jones defended the role of the internal auditor by putting the decision making ball back on the company’s management court: “We call out control issues we don’t take out those management decisions.”
Jones admitted that he had not been present at some of the auditor committee meetings and therefore could not answer on some of the potential warning signs of failure. While Jones assured the committee that this wasn’t an unusual practice, Rachel Reeves, co-chair of the committee said: “It might not be unusual but I find it quite surprising.”
KPMG’s Meehan had a hard job trying to account for certain of the discrepancies in figures on how much was owed to Carillion from their Qatar contract, the failure to receive payment from this contract has been cited as one of the main reasons for Carillion’s collapse.
Meehan reported that it was in the region of £70m as opposed to the £190m Carillion claimed in 2016. Whereas the Qatari company has said that it is Carillion that owe them money. The select committee suggested Meehan did not do enough to fact check this amount. Meehan referred to the confusion of who owed who what money as a difference of opinion of which there was no right answer.
Asked if he would conduct the audit any differently if given a second chance, Meehan said he would not.
As the hearing was coming to a close The Work and Pensions Committee chair Frank Field compared the Big Four to a gang competing for audit contracts and asked the three professionals present whether the committee should recommend to the government to break up the Big Four.
But the question missed the bull’s eye as it was easily brushed aside by the respondents. Hinchliffe highlighted that to deliver on those audits with the required quality one needs scale and specialist knowledge.
Jones added that in his 30 years career when pitching against each other for work it never felt like a “cosy club”.
The hearing left both external and internal auditor’s unscratched, although their arguments looked feeble at times, and many of the questions that lay in that grey area between the auditor’s duty and the public expectations remain unanswered.