115. It is the responsibility of the board of directors to prepare and approve the company's financial accounts.352 The role of the auditor is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement.353 If they are unable to obtain sufficient appropriate audit evidence to support that assessment, they should issue a modified opinion on the accounts, noting the areas of the accounts that are the cause of that modification.354
116. KPMG were Carillion's auditors for all 19 years of the company's existence from 1999. Such a long tenure inevitably calls into question whether they could provide the independence and objectivity that is crucial to high-quality audit. Legislation passed in 2014 requires listed companies to change their audit firm after a maximum of 20 years.355 Transitional arrangements, however, meant that Carillion would not have had to replace KPMG until 2024.356 KPMG said that its independence was not impaired after 19 years auditing Carillion. Michelle Hinchliffe, KPMG's Head of Audit, said she did not believe this was "too long to be impartial" and that "independence for me is a mindset. For myself and all my fellow partners, independence and integrity are absolutely critical to our profession".357
117. Over 19 years, KPMG charged Carillion £29 million in audit fees, alongside additional charges for taxation and other assurance services. Carillion's financial statements show that over that period, KPMG never found reason to offer a qualified audit opinion on the accounts. On 29 January 2018, shortly after Carillion collapsed, the FRC announced an inquiry into the 2014, 2015 and 2016 audits, with particular focus on the "company's use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts, and accounting for pensions".358 KPMG welcomed the investigation, stating "it is important that regulators acting in the public interest review the audit work related to high profile cases such as Carillion".359
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352 Companies Act 2006, section 394 and section 414
353 Financial Reporting Council, International Standard on Auditing (UK) 200 (revised June 2016), p 4
354 Financial Reporting Council, International Standard on Auditing (UK) 705 (revised June 2016), p 3
355 Financial Reporting Council, Audit tender notes on best practice, February 2017, p 4
356 Carillion plc, Annual Report and Accounts 2016, p 63
357 Qq944-45 [Michelle Hinchliffe]
358 Financial Reporting Council, Investigation into the audit of the financial statements of Carillion plc, 29 January 2018
359 Letter from KPMG to the Chairs, 2 February 2018