WORLDVIEW: KPMG exposed in ANOTHER scandal – is Carillion a game-changer for audit firm?

Global auditing and consulting giant KPMG has appeared with increasing frequency in the headlines in connection with accounting scandals. Yet, the firm has kept on going, with a strong show of support from the corporate world and as a valued partner of the World Economic Forum.

Reading between the lines of the latest auditing controversy involving KPMG, there are small signs something may be shifting within its bosom. KPMG has issued instructions to not do any work for companies connected to Carillion without sign-off by the board. Until now, KPMG professionals have happily worked across Chinese walls and in ethically compromised projects in a global organisation that rakes in huge sums in fees from governments and big business.

Carillion was a once-mighty construction firm that went bust earlier this year with financial obligations of about £5bn, a pension deficit of an estimated £2.6bn and dozens of unfinished public contracts. Although Carillion, suspended on the London stock exchange, issued a profit warning in July, its collapse took investors, employees and clients by surprise. KPMG has been Carillion’s auditor since 1999.

The clue that KPMG bosses are feeling public pressure is tucked in a report by Sky News that David Matthews, KPMG's head of quality and risk, told partners they cannot accept any Carillion-related work from public sector organisations. Any private sector work for clients involved in the fallout from Carillion's demise requires board sign-off. “The edict from Mr Matthews underlined the acute sensitivity of the crisis for the auditor's reputation, and comes as it faces inquiries by the accounting watchdog and parliament,” says Sky News.

The decision to resist fee-paying work linked to Carillion might be a case of KPMG bosses sensing that Carillion could be the proverbial straw that will break the camel’s back.

In January, London’s Evening Standard revealed that the Grenfell Tower inquiry had hired KPMG as its adviser despite the accountancy firm earning millions of pounds auditing players under investigation for the blaze and its aftermath. At least 70 people died.

KPMG was forced to step away from the Grenfell probe amid a public outcry that followed the revelation about KPMG’s “lucrative and long-standing relationships as auditor to Rydon — the main contractor in charge of the refurbishment widely blamed for the fire’s spread — Celotex, the maker of the insulation which police said failed safety tests, and the much-criticised Royal Borough of Kensington and Chelsea.”

And, late last year, South Africa-born politician Lord Peter Hain highlighted, in the House of Lords, the role of KPMG in corruption and industrial scale money laundering. In addition to auditing Gupta entities that syphoned taxpayers’ funds and dodged tax, the firm helped to produce a controversial report for the South African Revenue Service that led to the ousting of former finance minister Pravin Gordhan.

For years, KPMG has got away with, at the very least, light-touch audits on a range of organisations which paid it lucrative fees. Finally, it looks like the heat from the glare of publicity and probes by UK authorities are starting to make some at KPMG feel uncomfortable about doing business without thinking through the ethical dimensions. - Jackie Cameron