An Investigation into the KPMG and Carillion Audit Scandal in the UK

This research proposal outlines a study into the audit scandal involving KPMG and Carillion, a major financial failure in the UK. The background highlights the collapse of Carillion, a construction giant, despite KPMG being its auditor, and the resulting financial losses. The study aims to assess the reason...Read More

RESEARCH PROPOSAL

TABLE OF CONTENTS
Background.................................................................................................................................1
Research aims and objectives......................................................................................................1
Research questions......................................................................................................................1
Rationale.....................................................................................................................................1
Literature review.........................................................................................................................1
Research methodology-...............................................................................................................3
Conclusion..................................................................................................................................4
REFERENCES................................................................................................................................5

Title- What we learn from recent auditing scandals (KPMG and Carillion)
Background
In recent years, many audit firms in the UK has been indulged in the unfair practices in
respect of external audit practices and had failed to detect going concern problem with some
organisation (reference?). Despite KPMG is one of the big 4 audit firm, the largest clients and
the second largest Britain’s construction company and multinational facilities management and
construction Services Company (Carillion) have been suddenly collapsed without any signs
leaving behind it a debt of over 1.5 billion pound. (Thomas, 2018)
This disaster could be easily avoided if the Audit Company (KPMG) has detected the
problem at its early stage. Though detection of such problem is not easy but it is responsibility of
the auditor to ensure fairness and integrity towards its auditing function. This is clearly an audit
failure and will impact negatively on audit firm from wider stakeholder’s prospective
(Accounting scandals prompt KPMG ban on non-audit work, 2019). The study includes the
research methods and description about the issue of the audit scandal in both companies because
in recent years it has become a major issue in most of the countries and creates loss for the
overall economy. Furthermore, the aims and objectives are also made in relation to the study.
This research study will be describing various issues that had been faced at the time of the audit
scandal as it is important to know that due to this how other major sectors get affected.
Research aims and objectives
Aim: The aim behind initiating current study to assess reasons behind auditing scandal
associated with KPMG and Carillion.
Objectives
 To assess the trend of the audit scandal in the recent times with regards to UK companies.
 To investigate KPMG and Carillion practices in the context of current accounting
scandal.
 To develop new ideas which contribute to the audit practice.
Research questions
Q.1 What are factors that may cause of auditing scandal with regards to KPMG and Carillion?

Q.2 What are the recent trends relating to the audit scandal in UK?
Rationale
The major reason behind this study is that because of this scandal, the investors have
faced many difficulties as their money was invested in the firm. The company resulted in
collapse due to the audit failure made by the accounting firms. In addition, the reputation of the
enterprise in the overall market of the UK has been negatively affected (Chen and et.al., 2019).
The major reasons that results in the audit scandal were the overstatement, resultant gap between
the actual and the standard value, manipulating and not showing the fair view of the performance
and the position of the company which affects the decision making of the internal and the
external users. The main motive behind initiating this study is to highlight points due to which
accounting scandal occurs with regards to KPMG and Carillion. This study is highly significant
as it provides auditors with effectual framework in relation to the aspects which need to be
considered while practising auditing.
Literature review
Theme 1: Criticism related to KPMG and Carillion auditing scandal
According to the Evans and Kamla (2018) it has been identified that the audit scandal leads
the firm Craillion in liquidation and adversely affect its goodwill. On the other hand, at the time
when Carillion had acquired its several subsidiaries and the value that has been anticipated in
respect of the profits and the value of the asset of Carillion was overstated and a wrong picture
has been showed to the firm and the users. This scandal was resulted as the largest insolvency in
the history of UK. Carillion goes into the liquidation with the liabilities amounting to $9 million
and the balance in the bank account was very low say only few million dollars which in turn
leads the enterprise with insufficient funds in paying their liabilities. On the contradictory note,
Garrow, Awolowo and Growe (2019) depicted that by presenting some facts KPMG settled fined
by reducing amount from £3m to 2.1m significantly. Besides this, firm will also make payment
of £112000 on behalf of FRC As per my views, due to ethical breach and incompliance with
standards placed negative impact on concerned auditing firm namely Carillion. Tayan (2019)
also viewed that, big firms were connected with Carillion inn some or the other way in with the
KPMG and also its external auditors.

Theme 2: Overview of the audit scandal made by KPMG in Carillion
It has been reported that KPMG failed in challenging the management on the high
questionable assumptions in respect of the revenue of the construction contract and the
accumulated goodwill in case of the acquisition. The Chen, and et.al., (2019) had determined
that, KPMG was highly criticised in signing the accounts of the Carillion company, a
construction corporate that had later went in liquidation because of its insolvency. It has been
verdict that KPMG has made they fraud in making the auditing of the Carillion company and had
shown incorrect evaluation in the statements of the companies. Thus, from the case Hay and
Cordery (2018) analysed that in the past years auditing practices in the UK had become more
rigorous many financial restatements and bankruptcies has been resulted in the country. This
happened because auditors of KPMG has not warned the true comments on the credit worthiness
of the Carillion.
Theme 3: Causes of the Audit Scandal made by the KPMG
Moreover, Mock, Ragothaman and Srivastava (2018) has reflected that parliament has
driven for some remedial measures after the collapse of the Carillion in the country. The two
major principles has been introduced by the parliament that are fragmenting big four firms into
the smaller firms and secondly, detaching the audit arms of the company in context of their
consulting services which includes the advice in relation to acquisition and the mergers. The first
principle encourages the competition in the overall audit market that will help in limiting
potential for the audit firms and the enables the clients in nurturing the long term relationship.
Furthermore, the Shore and Wright (2018) also identifies that the FRC, a committee that has
made a detailed investigation on the collapse of the Carillion where all the key areas of the in
both construction and the service divisions that whether the auditors has ensured appropriate
reporting or not. The KPMG due to its political highlights, caught as it has given the wrong view
about the company. These are the different views that has been developed by the different
authors regarding the audit scandal made by the KPMG in the Carillion.
Research methodology-
Research type- It refers to the ways in which the research study will be made. Specifically
there are two mainly two methods for conducting the research that includes qualitative research

and quantitative research (Alvesson and Sköldberg, 2017). With reference this research study,
qualitative research will be made as it best suits for studying the audit scandal made by the
companies as the graphs and figures cannot be evaluated because data has not been given and
provided on the assessing the audit scandal so qualitative view will be emphasized regarding the
study.
Research approach- In making the research study, majorly there are two approaches that
involve inductive approach and deductive approach. Inductive approach means under which
research questions are made for assessing the scope of the study while in deductive approach
hypothesis are made. In this study, Inductive approach will be used by the investigator as it is
associated with the qualitative research and helps in making the analysis more useful in terms of
the qualitative characteristics are been framed based on the study.
Research philosophy- It refers to the belief in which the data relating to the phenomenon
must be gathered, used and to be analysed. Basically there are two main philosophy through
which the research study is made that are positivism and interpretivism (Bresler and Stake,
2017). Under this project report, interpretivism philosophy will be used by the scholar as it is
most suitable in studying the humanistic view towards the audit scandal resulted by the company
and in drawing the correct conclusion in this research study.
Data collection- It is the practice of gathering and analysing the information on interest
variable that helps the scholar in answering the research questions, evaluating outcomes and
testing the hypothesis. The data can be collected by two major sources that is primary and
secondary. Primary sources refers to collecting the data directly from the respondent whereas
secondary sources means gathering the data from the published articles. Primary sources include
surveying through preparation of questionnaire, personal or direct interview, observations and
scheduling. On the other hand secondary sources involve collecting data from newspaper, social
media websites, articles, journals, magazines and internet (Fletcher, 2017). In accordance with
this study, data will be collected through secondary sources through the published books,
articles, online website so that study could be made more relevantly and true facts can be drawn
on it which in results in useful study by the scholar.
Data analysis- It is the process of transforming, inspecting, mode-ling and
cleansing the data for discovering the useful information, in drawing the informing conclusion,

supporting the decision making regarding the study. Data can be analysed by using two methods
that is thematic analysis and SPSS (Mackey and Gass, 2015). Under this study, thematic
analysis will be used as the study is based on qualitative aspects as various themes will be
prepared based on objectives and the research questions.
Ethical considerations- Ethics relates with the norms and standards that need to be
followed by the scholar while conducting the research (Quinlan, Babin and Griffin, 2019). All
the ethics relating to the protection of data will be ensured and the not any misleading
information will be contained in the study.
Conclusion
From the above report it can be concluded that audit scandal made by the KPMG in the
Carillion Company had created major loss for the overall economy in the country as the firm
resulted in the insolvency and the fund was very less to recover the dues so this leads to the
shortage of the funds. It is very important for all the accounting firm to provide true and fair
observation on the reports of the company so that it does not fall into any misconduct and the
users also does not get mislead in respect of their investments made.

REFERENCES
Books and journals
Garrow, N. S., Awolowo, I. F. and Growe, G. A., 2019. Annual reports: Fact or fiction? Are
there governance implications?. Journal of Leadership, Accountability and Ethics. 16(1).
Page number?
Cooke, P., 2018. Responsible research and innovation? From FinTech’s ‘flash crash’at Cermak
to digitech’s Willow Campus and Quayside. European Planning Studies. pp.1-18.
Evans, L. and Kamla, R., 2018. Language and translation in accounting: a scandal of silence and
displacement?. Accounting, Auditing & Accountability Journal, 31(7). pp.1834-1843.
Tayan, B., 2019. The Wells Fargo cross-selling scandal. Rock Center for Corporate Governance
at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate
Governance No. CGRP-62 Version. 2. pp.17-1.
Chen, H. and et.al., 2019. Audit fees, perceived audit risk, and the financial crisis of 2008. Asian
Review of Accounting. 27(1). pp.97-111.
Hay, D. and Cordery, C., 2018. The value of public sector audit: Literature and history. Journal
of Accounting Literature. 40. pp.1-15.
Mock, T. J., Ragothaman, S. C. and Srivastava, R. P., 2018. Using Evidential Reasoning
Technology to Enhance the Audit Quality Assurance Inspection Process. Journal of
Emerging Technologies in Accounting. 15(1). pp.29-43.
Shore, C. and Wright, S., 2018. How the Big 4 got big: Audit culture and the metamorphosis of
international accountancy firms. Critique of Anthropology. 38(3). pp.303-324.
Alvesson, M. and Sköldberg, K., 2017. Reflexive methodology: New vistas for qualitative
research. Sage.
Bresler, L. and Stake, R. E., 2017. Qualitative research methodology in music education.
In Critical Essays in Music Education (pp. 113-128). Routledge.
Fletcher, A.J., 2017. Applying critical realism in qualitative research: methodology meets
method. International Journal of Social Research Methodology. 20(2). pp.181-
194.

Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design.
Routledge.
Quinlan, C., Babin, B. and Griffin, M., 2019. Business research methods. South Western
Cengage.
Online website
Bhaskar, K.N. and Flower, J. (2019). Financial failures and scandals : from Enron to Carillion.
Abingdon, Oxon ; New York, Ny: Routledge.
Accounting scandals prompt KPMG ban on non-audit work. 2019. Online. Available through:
<https://news.sky.com/story/accounting-scandals-prompt-kpmg-ban-on-non-audit-work-
11547932>.