The failure of Carillion, which provided construction and facilities management services within the UK and the Middle East, had far-reaching consequences, endangering thousands of jobs, disrupting critical public sector projects, and leading to significant financial losses.

The scandal has also laid bare the deficiencies in auditing practices and the necessity for robust regulatory oversight to prevent future corporate failures.

The FRC’s investigation, spanning five-and-a-half years, uncovered a series of violations of auditing standards by KPMG, marking a profound systemic failure in ensuring Carillion’s financial health and transparency. This lack of rigour contributed to Carillion’s eventual downfall, with liabilities of £7 billion against a mere £29m in cash, a discrepancy that went unnoticed in KPMG’s audits.

Regarding the audited financial statements for financial years 2014, 2015, and 2016, the FRC noted: “In each of these years, KPMG provided an unqualified audit opinion that the financial statements gave a true and fair view of Carillion’s affairs.”

In its investigations and resulting decisions, the financial oversight body highlighted that KPMG’s work was riddled with serious breaches from 2013 to 2017, including a deficient assessment of Carillion’s viability and numerous ethical violations.

The FRC’s fine was initially set at £30m but was reduced following KPMG’s cooperation during the investigation. KPMG’s UK chief executive, Jon Holt, acknowledged the firm’s significant shortcomings in the Carillion audits, admitting the work was indefensible and citing grave errors made over several years.

As part of the non-financial sanctions, KPMG has been given an order an order requiring the firm to take remedial action aimed at preventing recurrence of the breaches of relevant requirements including evaluating and reporting whether the measures taken by the firm since 2017 are sufficient in this regard.

Elizabeth Barrett, executive counsel, said: “The credibility of reports and opinions issued by auditors in connection with financial statements depends upon beliefs concerning the integrity, objectivity and independence of auditors and the quality of the audit work performed.

“The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit. This is reflected in the financial sanction imposed on KPMG LLP, the highest ever imposed by the FRC.”

Ms Barrett continued: “Many of the breaches involve failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain sufficient appropriate audit evidence.

“The breaches in relation to the 2016 audit even include failing to ensure that the audit process itself was properly managed and that the audit file was a reliable record. These requirements lie at the heart of proper auditing.

“The seriousness of the failings in the 2016 audit is compounded by the breaches of the Ethical Standards relating to the fundamental principles of objectivity, independence, and integrity.

“The non-financial sanctions imposed on KPMG LLP are focused on ensuring that failures on this scale will never be repeated.”

Earlier this year, KPMG reached an undisclosed settlement in a £1.3bn lawsuit initiated by Carillion’s liquidators, who accused the auditor of negligence in missing clear warning signs in the firm’s accounts before its collapse. The suit, concerning audits from 2014 to 2016, sought to recover losses for Carillion’s creditors.

The ramifications of Carillion’s collapse are ongoing, with former executives recently facing fines and bans, and the UK government pursuing further legal action against several other former directors.