Big four accountancy firm KPMG was slammed this afternoon for the “unacceptable deterioration” in the quality of its audit work.
The industry's watchdog, the Financial Reporting Council (FRC), said the firm, which audited Carillion before its collapse in January, will now face increased scrutiny.
Half of KPMGs FTSE 350 audits are "in need of more than just limited improvement", according to the FRC, an increase from 35 per cent the year before.
The scrutiny comes only a few months after MPs grilled KPMG for failing to flag problems with Carillion, with the accountancy giant expressing no concern over profits four months before the construction company collapsed. The findings could sting KPMG following recent news that the firm is set to become auditor of both telecom giant BT and mining firm Rio Tinto.
The FRC also warned that KPMG's peers – PwC, EY and Deloitte – also needed to improve the quality of their audits.
Stephen Haddrill, chief executive of the FRC, said: "At a time when public trust in business and in audit is in the spotlight, the Big Four must improve the quality of their audits and do so quickly."
He added: "They must address urgently several factors that are vital to audit, including the level of challenge and scepticism by auditors, in particular in their bank audits. We also expect improvements in group audits and in the audit of pension balances. Firms must strenuously renew their efforts to improve audit quality to meet the legitimate expectation of investors and other stakeholders."
Michelle Hinchliffe, head of audit at KPMG, said: "We are disappointed that our overall audit quality score has decreased by four per cent and that the steps taken in previous years have not resulted in the necessary improvements to audit quality. We are taking action to resolve this. We want all of our audits, regardless of size, to meet the highest standards set by the Audit Quality Review [AQR].
"It is important to note that the audit work appraised by the FRC for its 2018 AQR [audit quality review] took place principally in respect of 2016 year ends, prior to commencement of this work. We cannot and will not be satisfied with these results and, as a firm, we are already working to put this right."
The FRC is itself under the spotlight with the government tasking formerTreasury official Sir John Kingman to look at the regulator's future.