N※N

Carillion Collapse: FCA & FRC Pinpoint Blame After Decade

  //business-finance.news-articles.net/content/202 .. ollapse-fca-frc-pinpoint-blame-after-decade.html
  Published in Business and Finance on Wednesday, January 7th 2026 at 8:46 GMT by London Evening Standard

The Carillion Collapse: A Decade On, the FCA & FRC Finally Point Fingers – and What It Means for Accountability

Ten years after the spectacular collapse of Carillion, the UK’s Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC) have finally published their long-awaited findings, assigning blame for the failings that led to the construction giant’s demise. The report, released on January 26th, 2024, doesn’t just offer a post-mortem, but a scathing indictment of both the company’s leadership and the oversight bodies that were meant to prevent such a disaster. This article summarizes the key findings, the individuals and firms targeted, and the potential implications for corporate governance and accountability within the UK.

The Collapse: A Brief Recap

Carillion, a major government contractor responsible for building and maintaining vital infrastructure including hospitals, schools, roads, and even prisons, entered compulsory liquidation in January 2018. The company had accumulated over £7 billion in debts and left a trail of unpaid suppliers, jeopardizing countless jobs and public services. While seemingly profitable on the surface, Carillion was masking deep-seated problems through aggressive accounting practices, unsustainable bidding for contracts, and a relentless focus on maximizing short-term profits over long-term stability. The collapse became a symbol of corporate excess and regulatory failure.

The FCA’s Findings: Misleading the Market

The FCA investigation focused on how Carillion communicated its financial health to the market. The report found that Carillion repeatedly misled investors and stakeholders by presenting a “rosy” picture of its performance while concealing significant financial and operational risks. Specifically, the FCA identified failures in three key areas:

• Revenue Recognition: Carillion aggressively recognised revenue on long-term contracts even when the risks were substantial and outcomes uncertain. They were accused of pushing revenues forward to present a healthier financial position.
• Provisioning: The company failed to accurately account for the likely costs of loss-making contracts. Provisions – money set aside to cover expected losses – were consistently inadequate, artificially inflating profits.
• Net Cash: The FCA found that Carillion consistently presented a misleading picture of its cash position, failing to clearly communicate the gap between reported profit and actual cash generated.

The FCA determined that these misleading statements amounted to breaches of Listing Rules and Disclosure Guidance. While the FCA acknowledges difficulties proving intent to deceive (a high bar for prosecution), the report is unequivocal in its assessment of systemic failures.

The FRC’s Findings: Auditing Failures at KPMG & Individual Director Misconduct

The FRC’s investigation focused on the auditing practices of KPMG, Carillion’s long-standing auditor, and the conduct of individual directors. The findings are equally damning.

• KPMG’s Audit Failures: The FRC concluded that KPMG failed to adequately challenge Carillion’s aggressive accounting practices. The audit firm was criticised for accepting inadequate explanations, failing to gather sufficient evidence, and lacking the professional scepticism required to identify and address the underlying problems. The FRC highlighted specific failures regarding revenue recognition and provisioning, mirroring the FCA’s concerns. KPMG was sanctioned with a record £4.5 million fine (reduced from an initial proposed £6.5 million for cooperation) and a severe reprimand.
• Director Misconduct: The FRC also investigated the conduct of six former Carillion directors: Philip Green (Chairman), Richard Howson (Chief Executive), Emma Mercer (Finance Director), Andrew Grant (Director), and Keith Morrison and Neil Irvine (both Executive Directors). The report found that these directors breached their duties under the UK Corporate Governance Code. Specifically, they failed to challenge management’s optimistic outlook, allowed unrealistic cost assumptions to persist, and didn't take sufficient action to address the growing risks. The FRC has issued sanctions against these individuals, including fines and excluding them from future roles. Philip Green faced the most severe sanction - a disqualification from acting as a company director for seven years. Richard Howson received a similar penalty, while Emma Mercer was banned for five years.

Links Followed & Further Context

The Standard’s article links to a piece detailing the FRC’s director disqualifications ([ https://www.standard.co.uk/business/business-news/carillion-directors-disqualified-fca-frf-b1265334.html ]). This article clarifies the specific breaches each director committed and the length of their disqualifications. It also highlights the arguments made by the directors in their defence, which were largely dismissed by the FRC.

Another linked article discusses the limited prospect of criminal charges ([ https://www.standard.co.uk/news/uk/carillion-collapse-fca-frf-prosecutions-b1265324.html ]). This explains that while the FCA and FRC have identified failings, securing criminal convictions against individuals is difficult due to the legal standard requiring proof of “reckless disregard” or deliberate deception.

Implications & Future Accountability

The Carillion saga has prompted significant debate about the effectiveness of corporate governance and auditing in the UK. These findings reinforce the need for:

• Stricter Auditing Standards: The FRC is currently undergoing reforms to strengthen its oversight of auditors and promote greater independence.
• Increased Director Accountability: The disqualifications of Carillion directors send a clear message that individuals will be held responsible for their failures.
• More Transparent Reporting: Companies need to provide clearer and more honest information about their financial health, avoiding misleading metrics and aggressive accounting practices.
• A Culture of Challenge: Boards and auditors must foster a culture of robust challenge, questioning management’s assumptions and demanding evidence to support their claims.

While the investigations have taken a decade, the belated accountability for Carillion’s collapse is a step in the right direction. However, the question remains whether these measures will be enough to prevent similar disasters from occurring in the future and restore public trust in corporate Britain. The reports serve as a stark reminder that regulatory oversight, while important, is only effective when coupled with ethical leadership and a commitment to transparency.