81. As the dust settled, many analysts and investors began to question whether it had all been too good to be true in the first place. The August 2017 Carillion audit committee papers show that, as investors shied away from offering further equity to the company, a common question was emerging:
Many have questioned the timing of the provision. Surely management had known these contracts had been problematic for a while?277
Kiltearn Partners, which owned over 10% of Carillion's shares at the time the provision was announced, was very critical of the timing of the profit warning. They argued that changes of that magnitude do not generally materialise "overnight" and that there are "clear grounds for an investigation into whether Carillion's management knew, or should have known, about the need for a £845 million provision".278 Euan Stirling, of Aberdeen Standard Investments,279 concurred, saying "these things do not happen over a short period of time".280
82. The provision conceded that £729 million in revenue that Carillion had previously recognised would not be obtainable.281 This led to accusations that Carillion was engaged in "aggressive accounting", stretching what is reasonably allowed by accounting standards to recognise as much revenue upfront as possible. Sir Amyas Morse, Comptroller and Auditor General (C&AG), told the Liaison Committee that "when all the drains have been pulled up on Carillion we will see some pretty aggressive accounting practices".282
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277 This was a question from a joint presentation by Morgan and Stanley and HSBC to the Carillion audit committee, 22 August 2017,
278 Letter from Kiltearn Partners to the Chairs, 2 February 2018
279 Aberdeen Standard Investments is the investment arm of Standard Life Aberdeen plc, which was formed as a merger of Standard Life plc and Aberdeen Asset Management plc in August 2017. It was Standard Life who held shares in Carillion in 2015 and 2016.
280 Q1029 [Euan Stirling]
281 Carillion's group business plan shows that of the £1,045 million provision, £729 million went against trade receivables, with the rest being added to future costs. Carillion's Group Business Plan, January 2018, p 41
282 Oral evidence taken before the Liaison Committee on 7 February 2018, HC 770 (2017-19), Q5 [Sir Amyas Morse]