Before Jiten Kotecha became Senior Counsel, Labour & Employment at Cummins, he spent five years inside KPMG, one of the Big Four factories where corporations buy assurance that somebody clever has kicked the tyres. During almost exactly the same period, KPMG was signing clean audit opinions on Carillion. Nineteen years as auditor brought around £29 million in audit fees and not one qualified opinion. Then Carillion collapsed carrying nearly £7 billion in liabilities and approximately £29 million in cash. The tyres, it turned out, were mostly fucking smoke.
Audit is supposed to be one of capitalism’s less glamorous safety mechanisms. Directors produce the numbers, auditors crawl through them, challenge the assumptions and decide whether shareholders can reasonably trust what management has put on the table. Nobody buys an audit because the annual report needs another expensive logo near the back. The client is buying independent challenge, or at least that is the theory once everyone has finished polishing the fucking PowerPoint.
That word matters because independence without challenge is decoration. An auditor’s usefulness does not lie in discovering eighteen different ways to agree with management more professionally. The value sits in the willingness to interrogate evidence, ruin comfortable meetings and tell an important client that a cherished number does not stack up.
KPMG had nineteen years to practise.
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Jiten Kotecha And The Confidence Factory
Kotecha’s public career history places him at KPMG from 2013 to 2018 as an Employment Lawyer, advising organisations on employment matters and gender pay gap reporting before moving into Cummins. Five years inside KPMG meant five years inside one of the world’s largest professional-services organisations, where expertise, regulation, scrutiny and risk management form part of the product itself.
That institutional promise extends far beyond employment law. KPMG sells advice, but it also sells confidence in advice. Its consultants sell strategy, its tax specialists sell tax expertise and its lawyers provide legal expertise. Audit occupies an even more fundamental position because it sells assurance that somebody outside management has tested the story management wants investors to believe.
Carillion had KPMG.
For the entire life of the company.
Nineteen Years, Twenty-Nine Million Pounds
KPMG became Carillion’s auditor when Carillion emerged in 1999 and remained in place until the whole thing collapsed in 2018. Parliamentary investigators later calculated that KPMG had collected around £29 million in audit fees during those nineteen years, alongside additional income from tax and other assurance services.
Across the entire relationship, KPMG never issued a qualified audit opinion on Carillion’s financial statements. A modified or qualified opinion matters because it tells the market that the auditor has found a material problem, cannot obtain enough evidence, or otherwise cannot give the clean answer everybody in the boardroom would prefer.
That is supposed to be part of the product. The auditor is not there merely to admire the accounts and charge by the hour. At some point somebody may need to put a hand up and say that management’s version of reality requires an asterisk the size of Birmingham.
Carillion paid for nineteen years of external audit.
The asterisk never arrived.
2013: Jiten Arrives, The Audit File Is Already Interesting
Kotecha joined KPMG in 2013, which later became one of the Carillion audit years examined and sanctioned by the Financial Reporting Council. The regulator’s investigation into that year focused on a group of transactions connected with Carillion changing its outsourced IT and business-process provider.
Alongside the new services contract, Carillion entered agreements involving intellectual-property rights and a contribution towards exit fees payable to the previous supplier. Carillion treated those transactions independently, and that treatment produced a significant increase in reported profit for 2013.
Years later, the FRC concluded that KPMG had failed to obtain sufficient appropriate evidence to support the accounting treatment. The regulator also found inadequate professional scepticism, insufficient consideration of fraud risk and failures around disclosures that might have misled readers of the accounts.
This was not somebody on Twitter staring backwards at a share-price chart and declaring everything obvious. The audit regulator went through the fucking files.
And 2013 was already in them.
Professional Scepticism Is Not A Decorative Phrase
Professional scepticism sounds like the sort of language consultants print on a slide beside an abstract photograph of a lighthouse. In ordinary English, the concept is much more useful.
Do not swallow everything management tells you.
Ask the bastard questions. Where did this number come from? Why has this estimate moved? What evidence supports that treatment? What contradicts it? Has management chosen the optimistic assumption because the evidence justifies it, or because the optimistic assumption makes this year’s result look less shit?
That is not an exotic branch of auditing reserved for financial disasters. It is the job.
When the FRC finally concluded its Carillion investigations, it identified what it called an “unusually large number” of breaches across the work it examined. Many of those failures involved exactly the basic disciplines the profession is supposed to supply: obtain sufficient evidence, scrutinise management’s judgments and maintain enough scepticism to recognise when a convenient answer needs kicking rather than signing.
The warning lights were not hidden behind advanced mathematics.
Somebody simply had to look at them without wanting them to be green.
2014, 2015, 2016: Keep Signing
KPMG continued auditing Carillion through 2014, 2015 and 2016 and issued an unqualified opinion each year. The firm told readers of those accounts that the financial statements gave a true and fair view of Carillion’s affairs.
The FRC’s later findings were savage. Across numerous areas, KPMG failed to gather enough appropriate evidence, failed adequately to address information suggesting Carillion’s accounting might be incorrect or unreliable and failed to challenge management estimates effectively even where those estimates appeared unreasonable, inconsistent with accounting requirements or suggestive of management bias.
Carillion also mattered commercially to KPMG and to key members of the audit team. The FRC found that importance created an objectivity risk and identified instances where auditors accepted presentations that suited management rather than applying the rigorous challenge the circumstances demanded.
There lies the nightmare version of a professional relationship. The client becomes valuable, everybody knows the account matters, conversations become comfortable and challenge starts losing its teeth. Meetings remain cordial, documents remain beautifully formatted, invoices keep moving and nobody has to say the awkward thing.
Meanwhile the numbers underneath the carpet are breeding.
1 March 2017: True And Fair
KPMG issued its audit opinion on Carillion’s 2016 accounts on 1 March 2017.
Four months later, Carillion announced an £845 million reduction in the value of its contracts. By September, expected provisions had climbed to £1.045 billion, accompanied by a £134 million goodwill impairment.
Parliament later highlighted one extraordinary feature of that £1.045 billion figure: it matched the entire profits Carillion had reported over the previous seven years combined.
Seven years of reported profit effectively disappeared into provisions in a matter of months. That is less a deterioration than somebody opening a cupboard and discovering half the fucking building stored inside it.
The clean audit opinion was barely out of its packaging.
When A Billion Pounds Falls Through The Floor
Carillion was not some speculative little outfit with a website, three laptops and an inspirational founder taking investor calls from Dubai. It was the second-largest construction company in the UK before its collapse, employed tens of thousands of people internationally and sat inside enormous public and private contracts.
Its work touched roads, hospitals, schools, defence accommodation and public services. Thousands more people depended on Carillion indirectly through subcontracting and supply chains.
That is why accounting inside a company like this matters outside the finance department. Contract valuations affect profits. Profits affect dividends, borrowing, confidence and executive decisions. Suppliers decide whether to keep extending credit, pension trustees negotiate contributions and investors decide whether the reassuring numbers in front of them deserve belief.
Parliament eventually described a business whose financial position had appeared in an unrealistically rosy hue while aggressive accounting judgments helped sustain the picture. Suppliers endured notoriously lengthy payment periods, debt continued rising and the company kept distributing money while its underlying position deteriorated.
This was not an accountant’s disagreement over whether the biscuits belonged in expenses.
The whole bastard machine depended on the numbers.
January 2018: Twenty-Nine Million Pounds In Cash
Carillion entered compulsory liquidation in January 2018 carrying nearly £7 billion in liabilities and approximately £29 million in cash.
There is a grotesque numerical symmetry in there because KPMG had collected around £29 million in audit fees over its nineteen-year relationship with Carillion. One £29 million pile bought almost two decades of professional assurance. The other was roughly what remained in cash when the company finally hit the floor.
Only ten months had passed since KPMG issued its opinion on the 2016 accounts. During that period the company had announced more than £1 billion in expected contract provisions, suffered repeated profit warnings and reached the point where lenders, government and management could no longer keep the structure upright.
By January, there was no language left in the annual report capable of paying the bills.
Reality had performed its own audit.
The Human Invoice
Corporate failure always looks tidiest while it remains a collection of numbers. Nearly £7 billion. £29 million. £1.045 billion. Numbers sit politely on a page and do not tell you whose Friday afternoon just went to shit.
Carillion employed around 43,000 people worldwide, including roughly 19,000 in the UK, before the collapse. Its supply chain stretched much further, while approximately 27,000 people had interests in its defined-benefit pension schemes. Parliament said the company owed around £2 billion to some 30,000 suppliers, subcontractors and other short-term creditors.
Those people received the practical version of corporate governance. Employees wondered whether their work would survive. Suppliers stared at unpaid invoices. Pensioners faced uncertainty. Government departments had to preserve essential services and move contracts while the liquidation unfolded.
Nobody in that group needed a seminar explaining professional scepticism.
They needed the checks that were supposed to happen before the fucking crater appeared.
Parliament Opens The File
The joint Work and Pensions and Business committees eventually took a meat cleaver to the professional ecosystem surrounding Carillion.
KPMG received some of the ugliest language.
MPs emphasised the nineteen-year relationship, the £29 million in audit fees and the complete absence of a qualified audit opinion. Their report said KPMG had failed to challenge aggressive accounting judgments and described the firm as having become “complicit” in those judgments through its failure to exercise and voice professional scepticism.
That word lands hard because independence sits at the centre of the profession’s sales pitch. Auditors do not prepare the accounts and should not behave as extensions of management. Their purpose is to stand apart from the people producing the numbers and subject those numbers to independent challenge.
Parliament concluded that KPMG had not challenged hard enough.
Nineteen years is a long time to forget why somebody hired you.
The £29 Million Question
The economics of that relationship deserve attention because audit operates inside a peculiar commercial arrangement. The client pays the auditor, yet the auditor must retain enough independence to tell the client something deeply unwelcome.
KPMG’s Head of Audit defended the firm’s independence during the Parliamentary inquiry and said impartiality was a mindset, with integrity and independence critical to the profession.
The FRC later found that Carillion’s importance as a client actually created an objectivity risk, while audit staff in specific instances failed to apply the necessary rigour and challenge.
There is the difference between the values poster and the evidence file. Independence sounds magnificent when printed beneath the logo. The useful version arrives when an important client wants a number accepted and somebody across the table has enough backbone to say, “No. This is bollocks.”.
That word is worth considerably more than another brochure.
The Audit Work Continued After The Opinion
The FRC’s findings on KPMG’s 2016 audit contain one of the article’s most astonishing details.
KPMG did not complete audit procedures in several areas until more than six weeks after it had already signed the audit report.
By then the opinion had already gone out to the world. The regulator also found unreliable and, in some instances, misleading records concerning the preparation and review of working papers. More fundamentally, KPMG had no effective process ensuring that every procedure supporting the 2016 opinion had reached satisfactory completion, documentation and review before the report went out.
That is not a philosophical argument over accounting judgment. It is audit plumbing hanging out of the ceiling after somebody has already signed off the building.
When customers buy assurance, finishing the assurance before issuing the assurance feels like fairly bread-and-butter shit.
Going Concern Gets Seriously Deficient
The regulator reserved particularly ugly language for KPMG’s 2016 work concerning Carillion’s financial position and whether the company could continue as a going concern.
The FRC called the work “seriously deficient”.
It found that KPMG had failed to respond adequately to numerous indicators showing that Carillion’s core operations were losing money and that the business relied on short-term, unsustainable measures to support cash flow.
Going concern is not decorative boilerplate buried beside the accounting policies. It concerns whether the business can continue operating for the foreseeable future. When cash flow increasingly depends on short-term fixes, the auditor is not looking at a slightly untidy dashboard.
The fucking engine light is on.
An Important Client Can Become A Dangerous Client
Carillion’s importance to KPMG matters because professionalism becomes most valuable where commercial incentives make challenge uncomfortable.
The FRC found that Carillion ranked as a very important client for both KPMG and key members of the audit team. That importance created an objectivity risk, and the regulator identified occasions where auditors accepted financial presentations that suited Carillion management instead of applying sufficiently rigorous scrutiny.
This is the arse-backwards danger built into professional services. A client becomes commercially valuable precisely as the professional’s willingness to upset that client becomes increasingly valuable to everybody outside the relationship.
Auditors should therefore be the awkward bastards at the table. Their purpose is not to preserve the atmosphere over lunch. When management’s assumptions wobble, they are supposed to kick them.
If preserving the relationship softens that instinct, the auditor stops functioning as a check and starts becoming scenery.
Then The Regulator Brings The Bill
The FRC eventually imposed sanctions on KPMG entities covering both the 2013 audit and the 2014 to 2016 audits, plus additional audit work in 2017.
For the later work, the regulator imposed a £26.5 million financial sanction on KPMG LLP before applying a 30% reduction for cooperation and admissions, bringing the figure down to £18.55 million. On the 2013 audit, the FRC imposed £3.5 million on KPMG Audit Plc before reducing that sanction to £2.45 million on the same basis.
Together, those discounted financial sanctions reached £21 million.
The proceedings also left KPMG LLP paying more than £5.3 million in investigation costs.
Nineteen years brought around £29 million in audit fees. The regulator eventually imposed £21 million in discounted sanctions and millions more in costs after examining the work.
That is one vicious fucking reconciliation.
The Failures Reached The Core Of The Business
The FRC found significant and serious breaches in every audit it investigated.
Those failures touched Carillion’s major construction and services contracts, reported debt, going-concern assessment, supply-chain finance, pension liabilities and goodwill. UK contracts alone accounted for nearly three quarters of group revenue, so this was hardly a collection of obscure errors in dusty subsidiaries nobody could locate on a map.
The regulator said many failures concerned the most basic and fundamental requirements of auditing, including obtaining sufficient appropriate evidence and exercising professional scepticism.
Basic is the word that stings harder than complicated. Nobody had failed to solve a previously unknown branch of mathematics or unravel some exotic accounting theorem. The regulator was talking about bread-and-butter work: obtain enough evidence, interrogate what management tells you and maintain enough scepticism to recognise when a number needs kicking rather than signing.
That is what the enormous professional-services machine was there to do.
KPMG Had To Rebuild The Assurance Pitch
Carillion did not merely damage one audit engagement. It became part of a much larger crisis around the credibility of the Big Four audit market and whether firms with enormously valuable corporate relationships could deliver the independent challenge that shareholders and the public expected.
KPMG subsequently emphasised improvements in audit quality, training, professional scepticism and management challenge. The profession itself faced reviews, reform proposals and furious questions about competition, incentives and whether auditors had become too commercially comfortable with the organisations paying them.
That aftermath matters because KPMG’s entire institutional appeal rests on expertise. Clients do not buy the logo because the shade of blue is reassuring. They buy the judgment supposedly sitting behind it.
Carillion exposed what happens when judgment loses its edge.
Five Years Inside KPMG
Kotecha’s five-year spell at KPMG ran from 2013 to 2018, neatly spanning the period that later became central to the Carillion audit findings.
His first year at the firm coincided with the 2013 Carillion audit work later sanctioned by the regulator. KPMG then continued issuing clean opinions through the following audit years while the weaknesses identified much later by the FRC accumulated across the files. In 2017, the financial picture detonated. By January 2018, Carillion had entered compulsory liquidation.
That chronology is why KPMG deserves a second visit in Jiten’s Jobs. This series is not interested in reading prestigious employer names from a CV as though professional status transfers automatically through proximity to a logo. The interesting material appears when you open the institution itself and look at how its celebrated expertise performs under pressure.
KPMG is about as prestigious as professional services gets.
Carillion is what prestige looked like after somebody lifted the floorboards.
What Exactly Was The £29 Million Buying?
Strip away the committee reports, professional terminology and regulatory machinery and one question survives.
What was Carillion buying from KPMG for nineteen years?
It was not paying KPMG to prepare management’s accounts. The company had its own directors and finance teams for that. The audit relationship existed to provide independent assurance that the financial statements deserved reliance.
That meant asking whether assumptions made sense, demanding evidence and telling management when a treatment could not survive scrutiny. A sophisticated professional-services firm could surround that exercise with systems, methodologies, templates, review structures and acres of documentation, but none of it mattered if nobody ultimately wanted to say, “No, this doesn’t fucking stack up.”
KPMG collected approximately £29 million in audit fees across Carillion’s life.
Parliament later accused it of complacency and complicity.
The FRC found an unusually large number of breaches, serious failures in every audit it investigated, deficiencies in evidence, failures of professional scepticism, objectivity problems and 2016 audit procedures that continued for weeks after KPMG had already issued the report.
There is no clever metaphor required.
The numbers swear perfectly well by themselves.
£29 Million To Never Say No
Carillion reached liquidation carrying nearly £7 billion of liabilities and around £29 million in cash. Its collapse hit employees, suppliers, pension schemes, investors and public services while Parliament began asking how so many supposedly sophisticated checks had failed at the same time.
KPMG was supposed to be one of those checks.
Across nineteen years, Carillion paid around £29 million in audit fees and never received a qualified audit opinion. When the FRC eventually excavated the later audit files, it found serious breaches throughout the years it investigated and described some failures as touching the most basic foundations of proper auditing.
An auditor’s most valuable contribution is occasionally supposed to be the word no. No, that assumption is too aggressive. No, the evidence is insufficient. No, the accounts cannot go out like this. No, management does not get the answer it wants just because everybody would prefer a quiet afternoon.
Fix the bloody numbers.
Carillion paid KPMG for nineteen years.
The word never reached the audit opinion.
Lee Thompson – Founder, The Cummins Accountability Project
Sources
- House of Commons – Carillion: Auditors
- House of Commons – Carillion: Conclusions And Recommendations
- House of Commons – Carillion: The Collapse
- Financial Reporting Council – Sanctions Against KPMG And Former Carillion Audit Partners
- GOV.UK – Carillion Contracts Complete Transfer
- The Org – Jiten Kotecha: Senior Counsel, Labour & Employment At Cummins
- KPMG UK – Annual Review 2018