Re: Moral duty... Life, Agreed.
Moral duty... Takes a long court case before they accept they have those:[link]
Re: 23% shorted... I agree KPMG should be sacked. In the meantime they should compensate shareholders who have been misled by their 2016 Audit Report. They have no legal liability to do so, but they have a moral duty.
Re: 23% shorted... Presumably it is still being massively shorted because they expect any new management team to further provide on everything in sight - and any new auditor (....?) to go over every material outstanding contract with a fine comb and demand such additional provisions where they believe it 'might' be warranted, with little or no leeway granted. It will be a case of clearing the house out of ALL old rubbish.LT contracts are very difficult to audit but yes, KPMG made a total mess of it, seemingly. They must go.
Construction Enquirer 2 [link] article refers to Carillion picking up a lot of work in Manchester area, an area where other builders suffering from skills shortage. Makes you wonder if the margin is protected?
Re: Construction Enquirer Pyueck,Now we are in complete agreement. You have specified exactly what auditors are supposed to do and it is far more complex than merely using a green pen to tick boxes, The point I was making about 'engineering degrees' was that those doing the audit would be sufficiently qualified to know if managenent were trying to pull wool over their eyes. This was in response to one poster arguing that the audit team could not be held responsible because they were not engineers,I agree that doing a full review of a programme is very time consuming, but given KPMG charged £1.4 million for the audit, it must follow they followed the procedures you described in a number of cases. They wrote in their audit report that they had looked at 'specific risk' for 8% of all contracts are had carried at significant (if not full) procedures for everything else. Given the company created a provision of £845 million a mere four months after the accounts were signed off (over 100 times the materiality limit) surely you would agree with me that there is clear evidence that the auditor either withheld significant information from their Audit Report or is guilty of not doing a professional job.There have been a number of recent cases of audit failures (Tesco and Stanley Gibbons, being two others that springs to mind straightaway). I write as a shareholder (i never held shares in Carillion because I never buy into companies that have negative net assets when you exclude intangibles) that the service provided by the accountancy profession is simply not acceptable. As a qualified accountant I am ashamed that my profession is so appalling.I agree with you that auditors cannot be sued. In my view, the law needs to change. Shareholders should be able to sue auditors where they have been clearly negligent. If I am thinking of buying shares in a company, I should be able to rely on the latest audit report (unless of course there has been a subsequent announcement in the meantime). I never rely on Audit Reports, but carry out my own tests, but why should most shareholders be at such a disadvantage?
Re: Construction Enquirer Well I am an accountant and have been an auditor and audit manager at big 4. I can honestly say that I have never known an audit to include getting a subject matter expert engineer involved. It just isn't an option. Would somebody have an engineering team, well the team is likely to be 8-10 people, quite frankly can't see how having an engineering degree would be relevant anyway to assessing if a contract should be provided for!On a contract review they should look for evidence that the programmes are not going to be loss making and if so that they are adequately provided for. This will usually involve looking at cash flows from the programme, reviewing debtors, reviewing the p&l of programme against budget. Doing a full review of every programme is very time consuming, i.e. Involving reviewing legal contracts, have correspondence with third party, doing credit checks of third parties, speaking to legal for litigations etc. In a normal audit they would pick a sample look that they are profitable and check p&l vs budget not much else.Also check out the terms of an audit. Basically you can't sue them whatever goes wrong. Best you can hope for is a fine by regulator and them doing payout without admitting liability.
Re: Construction Enquirer Kenj2, I am a qualified accountant and having been both a Finance Manager and Finance Director, I have had a great deal experience of auditing and I know what goes on. In this case, I would say (given the size of the audit) that a number of those working on the audit would have an engineering degree as well an an accounting qualification.Auditors do NOT merely ask managers and directors their view and accept every word they are told. If they did, there would be absolutely no point in having an audit. What they do is TEST the information they are given to substantiate what they have been told. The clue is that the audit included examining specific risk; if that meant merely asking management "is this project OK? Fine we'll move on" you will have to ask yourself how they justified a fee of £1.4 million.You cannot get away from the fact that in hindsight the 2016 accounts contained material misstatements. The auditors cannot simoly walk away protesting 'it's not my fault, gov."
Re: Construction Enquirer "They recruit staff with a variety of qualifications and employ specialists to aid with just such difficult matters as complex project appraisal."The problem is that Carillion's engineers and buisness managers signed off, on these contracts, which they would not have done if they thought these contracts were not viable or profitable. I am sure that Carillion have much more knowledge and experience on these building and maintenance contracts than the auditors have. Yet they still got it wrong. So why blame the auditors?
Re: Construction Enquirer Most of the big audit firms organise their staff by industry groups. They recruit staff with a variety of qualifications and employ specialists to aid with just such difficult matters as complex project appraisal.You're right that it's no guarantee of course.
Re: Construction Enquirer I wonder how much knowledge you have of auditing, Numberbiter?If an engineering manager states how long a project will take and how much it should cost, the auditor is not qualified to disagree with him. Only if he thinks that he is being lied to would he commission a second independent opinion. The auditor is essentially a bean counter, it is unlikely that he has any engineering qualifications.The clip below, from an article defending auditors, says much the same.[link] Auditing 101, we learned that the audit purpose is to confirm the integrity of managements financial statements. While not an assurance of error free, the audit does assure the reader that the auditor has done a professional job of having examined controls over risk and gathered supporting evidence.The auditor is engaged, therefore, to provide credibility to managements assertions, not to catch them lying. Therefore, the auditor, in the absence of information to the contrary, has a right to assume integrity on the part of management. It follows that if the auditor is not engaged to detect fraud then for management to mislead the auditor is a violation of the fundamental client auditor relationship."I am not questioning the integrity of Carillion's management, but there is a very big question over their competence.
Re: Construction Enquirer Dear Kenji, It must be obvious that you have no knowledge of auditing. They don't just tick figures put before them; they go out to talk to people. When they say they audit for specific risk, this means assessing contracts, If none of the auditors have any knowledge of engineering, then they should not be doing the job; certainly they should not be charging £1.4 million if they have insignifant experience.Where you have long term contracts it is normal that stage payments are built into the contract. For the business Carillion are in debtor days should be between 70 and 80 days. With Carillion's debtor days in excess of 130 days, it would be standard practice to select a debtor who had the most outstanding (on an overdue basis) debt and ask him why payment has not been made on time. The auditor would soon find the problem as the debtor would spill the beans in no uncertain terms,The reality is that the auditor has no excuse; the accounts were materially misstated. Shareholders should be compensated,
Re: Construction Enquirer There has been no shortage of sloppy or incompetent auditing lately. However, the auditors can only verify the numbers put before them. Auditors know nothing of engineering problems and whether projected building costs are realistic. They have to rely on the information supplied by the company's directors and finance managers. I suspect that this balls up is far closer to home.
Re: Construction Enquirer But the WHOLE point of an audit is to establish the facts. That is what they are supposed to be there for. From the company's point of view, what is the point of spending £1.4 million, if they cannot discover anything.As you say, this is fishier than a fish market. At least there they can recognise what a fish looks like.
Re: Construction Enquirer I assume their argument is the provision was required because of facts that were not known at the time the accounts were prepared or because of events that happened after they were prepared.Fishier than a container ship working for John West....