KPMG has blamed the £725m actuarial loss of the Carillion pension scheme on the falling AA bond yields, as its reporting standards come under fire, it has emerged.
The information comes as the big four accounting firms, KPMG, EY, Deloitte and PwC, responded to questions raised by the Work and Pensions and the Business, Energy and Industrial Strategy (BEIS) committees released today (13 February 2018).
Accounts of the big four show that combined, they earnt £71.6m for their work with Carillion, its pension schemes and the government, with PwC charging Carillion’s pension schemes a £6.1m bill since 2008.
KPMG defended its role in the Carillion disaster and said that a fall in the discount rate applied to future liabilities from 3.95 per cent to 2.7 per cent, driven by historically low yields, had a “proportionally significant impact” on liability values.
According to KPMG, IAS 19 pension deficits for companies in the FTSE 350 increased from £50bn to £62bn in 2016, and that Carillion’s liability valuation was “in line with other providers of defined benefit schemes”.
The firm has also come under fire in a Financial Reporting Council (FRC) audit quality inspection, which found that it needed to strengthen its “audit approach for corporate entities in relation to defined benefit pension scheme assets and membership data”.
A joint committee statement said that KPMG will be pressed further on pensions at their committee hearing on 22 February 2018, adding that the issue “was not addressed in any depth in their letter”.
Work and Pensions Committee chair, Frank Field MP, said: “The image of these companies feasting on what was soon to become a carcass will not be lost on decent citizens. We saw at the end of our evidence session that the former directors of Carillion are, unlike their pensioners, suppliers and employees, alright.
“These figures show that, as ever, the big four are alright too. All of them did extensive – and expensive – work for Carillion."
BEIS committee chair, Rachel Reeves, said: “KPMG has serious questions to answer about the collapse of Carillion. Either KPMG failed to spot the warning signs, or its judgement was clouded by its cosy relationship with the company and the multi-million pound fees it received.”
“For the sake of all those who lost their jobs at Carillion and in the interests of better corporate governance, KPMG should, as a bare minimum, review its processes and explain what went wrong.”
Elsewhere, PwC said it delivered £6.1m of pensions advice to Carillion regarding options to manage the schemes liabilities, focusing on hedging the schemes exposure to interest rates, inflation and longevity.
The firm gave almost £1m worth of advice to Carillion Defined Benefit Trustees, over £4.6m to the Electricity Supply Pension Scheme and a further £445,000 to Railways Pensions Trustee Company.
PwC said: “PwC worked alongside other professional advisers in providing the services which involved assisting the group in discussions with the trustee. The decision whether or not to implement any of the options was made by the trustee (who was separately advised).”
Field added: “PWC managed to play all three sides – the company, pension schemes and the government – to the tune of £21m and are now being paid to preside over the carcass of the company as special managers. It was perhaps telling that, with their three fellow oligarchs conflicted, PWC were appointed to this lucrative position without any competition.”