Carillion was a British multinational construction company that was engaged in a
construction project in Qatar. The company experienced problems regarding the collectability
of nearly £200m in unpaid invoices and payments related to the project. Despite problems
regarding the contract in 2014 and 2015, revenue was recognized on the 2017 financial
statements, without a provision to account for the unlikely collectability of the revenue.
Additionally, the company suffered a pension deficit that led its demise.
The type of fraud perpetrated by Carillion could be characterized as an operating
activity case or big bath case of earnings management. The company deliberately modified
the recognition of a bad debt expense as a way to inflate its earnings. While the exclusion of
this expense inflated in its earnings, it came back to haunt the company, as it paid large
dividends based on its faulty earnings totals. KPMG’s failure to scrutinize these contracts and
revenue estimates led to loss of thousands of jobs.
References
Shoaib, A. (2020, February 27). Carillion inquiry: Missed red flags, aggressive accounting
and the pension deficit. Accountancy Age. Retrieved October 10, 2022, from
https://www.accountancyage.com/2018/02/26/carillion-inquiry-missed-red-lights-
aggressive-accounting-pension-deficit/
