People deserve a second chance — even Stephen Haddrill, the Financial Reporting Council boss. Once again, he is poking around a famous KPMG audit. He can’t afford another whitewash.
Last time it was KPMG’s prowess at HBOS in 2007. The FRC verdict? Exemplary stuff. True, months after being signed off as a “going concern”, the bank inconveniently went bust: £5.5 billion profits transmogrified into £11 billion losses a year later, with HBOS requiring a £20 billion bailout. Yet, as Mr Haddrill reasoned, how could KPMG have been expected to spot anything wrong. Its judgments were not “unreasonable at the time” and, besides, most analysts reckoned HBOS shares were “buy” or “hold”.
In short, it was a ridiculously cosy verdict from a regulator stuffed with accountants. So it’s lucky that KPMG has now come up with another case for Mr Haddrill’s forensics: its audit of Carillion, the construction and outsourcing outfit that keeled over this month with £2.4 billion of liabilities. As recently as last March , KPMG had declared the accounts tickety-boo. By July, Carillion had unearthed an £845 million crater in its contract book and rocketing debt. By January, it was officially insolvent.
No surprise, then, that the FRC will now look into possible breaches of “ethical and technical standards” over three years to December 2016, with the key themes being “going concern”, revenue recognition and pensions — something MPs on the business and pensions committees are also scrutinising, starting with today’s hearing starring Mr Haddrill.
“Professional accountants” within Carillion are also in the frame: not least two former finance chiefs, Richard Adam and Zafar Khan, head of the audit committee Andrew Dougal and stand-in boss Keith Cochrane. And in fairness to Mr Haddrill, at least the FRC is getting on with it — unlike the HBOS farrago, where it took eight years to start an inquiry.
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There are pertinent questions, too. KPMG knew of the “risks of material misstatement” over revenue recognition and receivables — money due from contracts but not yet collected. And it was alive to the risk that the balance sheet was inflated by £1.57 billion of goodwill.
Yet it still seems to have missed issues raised in the industry and the press over project cost overruns, not least the Aberdeen bypass, hospitals in Liverpool and Birmingham and a Qatar property project. Nor did it ask enough awkward questions over Carillion’s problems in getting money out of the Middle East.
As for the directors, first Mr Adam and then Mr Khan signed off three years of “going concern” statements with near-identical language, saying there were “no material uncertainties”.
And things do seem quite cosy. In the 2016 annual report, Carillion awarded KPMG an “approval rating of 4.7 out of 5” for its audit work. Perhaps KPMG did nothing wrong. But, given the furore over HBOS, Mr Haddrill cannot come up with a similar rating. Who would believe he is doing his job?
GKN pension farce
Another day, another GKN “pensions update”. But this time it’s direct from the company, rather than from the trustees, analysts on a site visit or the result of investor briefings.
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Indeed, Melrose, the outfit behind the £7.4 billion hostile bid for GKN, reckons the Takeover Panel forced some overdue clarity. Anyway, what did GKN say? Well, depending on which bit of pensions accounting you fancy, the deficit is anywhere between £100 million and £2.2 billion. The main new figure, apparently, is that it’s £700 million on an accounting deficit basis.
Whatever. It gave GKN another chance to point out that, should Melrose succeed with its offer, net debt-to-ebitda would leap from 0.6 times to 2.5 times — the sort of leverage to make the trustees jumpy. So the “cash funding requirements” for pensions would probably go up.
It’s a fair point, though no shock to Melrose, which swiftly pointed out that GKN’s latest statement had “no impact on our calculations”. In fact, Melrose had already told GKN in writing, as long ago as January 8, that it was prepared to inject an extra £150 million into the pension funds to assuage the trustees’ concerns. True, GKN is not obliged to point that out — and the trustees could demand more money, anyway. But it’s useful extra cash to go with GKN’s pensions scaremongering.
It’s easy if you try
Squint a bit and there is one obvious difference between Johan Lundgren and Dame Carolyn McCall: Easyjet’s new boss has got a whacking great trombone. Still, there are limits to how useful that is for an airline chief.
So it was always a bit much that the Easyjet board lured Mr Lundgren from Tui with basic pay of £740,000. It was £34,000 more than received by Dame Carolyn, who had proved herself over seven years before decamping to Love Island, or at least ITV.
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Full marks, then, to Mr Lundgren. He has worked out that it all sets a rotten example on the gender-equality pay front and has given up his extra moolah. And nothing to do with any awkward questions for the annual meeting on Thursday week. He also wants to hire more female pilots to redress the gender and pay imbalance across the airline. A decent start.
Taken for a ride
Here are the “biggest culprits when it comes to lacking common courtesy” on our streets: cyclists who cannot be seen “clearly at all times”; cyclists who hog the middle of the road; smoking pedestrians; and invisible joggers.
What about rude motorists? Not in the top four, at least according to a survey of a vast 200 people — by Venson Automotive Solutions.