The UK’s Financial Reporting Council (FRC) has launched an investigation into the conduct of bankrupt construction firm Carillion’s (LSE:CLLN) two former finance directors. The accounting watchdog will look at how Richard Adam and Zafar Khan prepared and approved Carillion’s financial statements for the years ended 31 December 2014, 2015, and 2016. It will also at the pair’s conduct surrounding the preparation of financial statements for the six months ended 30 June 2017 and other financial information during the period 2014-2017.
The FRC has powers to impose unlimited fines or ban members from professional accounting bodies. It said its investigation would be carried out ‘as quickly and thoroughly as possible’ alongside the official receiver, the FCA, the Insolvency Service, and the Pensions Regulator.
Carillion, formerly the UK’s second-largest construction company, collapsed with debts of £1.5bn and a pensions black hole of up to £2.6bn in January after lenders pulled the plug. The firm employed around 43,000 people and its failure rocked both the construction industry and the public sector, with Carillion engaging in various joint venture projects at the time of its collapse.
Adam has already come under fire from MPs investigating Carillion last month after it was revealed that he sold shares in the firm worth around £800,000 ahead of the business’s collapse. Meanwhile, Khan was in his role for just eight months before his contract was reportedly terminated after he ‘spooked’ Carillion’s board with a worse-than-expected financial update.
Today’s probe comes just weeks after the FRC announced that it is already looking into the auditing of Carillion’s financial statements by accountants KPMG. Separately, a Government-backed report that was commissioned by Carillion’s board in 2017 has concluded that the firm ‘aggressively managed’ its balance sheet to look healthier than it was. The business, which had just £29m on its books at the time of its collapse, stands accused of bringing income forward and postponing payments in a presentation to would-be lenders.
Alongside the FRC, the FCA is looking into the ‘timeliness and content’ of Carillion’s market updates while the Work and Pensions committee is looking at why the firm collapsed. Back in January, ValueTheMarkets.com took a look at some of the lessons that can be learned from Carillion’s demise.
Author: Daniel Flynn
Disclosure: The author of this piece does not own shares in the company mentioned