KPMG is facing a 1.3 billion pound (U.S. $1.8 billion) lawsuit for missing “red flags” during its audits at failed construction company Carillion, which creditors say was insolvent more than two years before it collapsed.

The claim—which KPMG intends to defend and said is “without merit”—alleges the audit firm failed in its duties as auditor to spot misstatements in the outsourcing group’s accounts.

The focus of the negligence claim, made public Thursday, is on the value of major long-term construction contracts not properly accounted for in 2014, 2015, or 2016 audits, resulting in misstatements in excess of £800 million (U.S. $1.1 billion).

Carillion went into compulsory liquidation in January 2018 and became one of Britain’s biggest insolvencies. Until summer 2017, it had a market value above £1 billion (U.S. $1.4 billion) and was the country’s second-largest construction group.

In March 2017, the group reported an underlying profit from operations of £236 million (U.S. $320 million) for the 2016 financial year. In July and September 2017, it announced total write-downs of £1.045 billion (U.S. $1.4 billion), a sum equivalent to the previous seven years of profits combined.

Liquidators allege KPMG accepted management explanations for inflated revenue and understated cost positions.

In response, KPMG said, “Responsibility for the failure of Carillion lies solely with the company’s board and management, who set the strategy and ran the business.”

The claim cites evidence KPMG failed to maintain professional independence and engaged in an improper relationship with Carillion management, which breached professional audit and ethical obligations.

It alleges Peter Meehan, the KPMG partner in charge of the Carillion audit, accepted hospitality from and offered hospitality to Carillion and its senior management and helped executive management get figures past Carillion’s audit committee.

He is also alleged to have backdated KPMG’s audit opinions for some of the company’s accounts.

Meehan was suspended by KPMG in January 2019 and left the firm in January 2021.

KPMG was Carillion’s auditor for 19 years, earning a total of £29 million (U.S. $39 million) for its work. Over that period, the firm never qualified its audit opinion. Liquidators say Carillion was “balance sheet insolvent” by the end of the 2016 financial year.

The official receiver, part of the U.K. Insolvency Service and acting on behalf of Carillion’s creditors, said in a statement he has submitted a claim to the High Court “in the interests of creditors who lost substantially in the liquidation.” The receiver added, “KPMG is answerable to Carillion’s creditors for a portion of their losses.”

The damages claim includes dividends worth about £210 million (U.S. $284 million) paid out to shareholders, £31 million (U.S. $42 million) in professional advisory fees, and trading losses of more than £1 billion.

Following recent court rulings that have redrawn the tests—and awards—for professional negligence, the figure being sought is more than five times the £250 million (U.S. $339 million) liquidators were originally preparing to sue KPMG for in May 2020.

The case has sparked a debate about the role and duties of auditors in detecting fraud and put a spotlight on why it has historically been difficult to hold audit firms, as well as company executives (individually or collectively), accountable for corporate failure.

Eight former Carillion directors have denied wrongdoing and are defending a separate legal action by the Insolvency Service, which seeks to ban them from directorships. The trial is scheduled for 2023.

The Financial Reporting Council, the U.K.’s corporate governance regulator, is currently investigating KPMG’s audits of Carillion.

In an inquiry report released in May 2018, Members of Parliament accused KPMG of being complicit in the company’s failure by “failing to exercise and voice professional skepticism.”