If KPMG wants to successfully defend itself from the 1.3 billion pound (U.S. $1.8 billion) negligence claim it faces from creditors for its alleged shoddy audit work at collapsed construction company Carillion, the revelations that have so far come to light from the disciplinary tribunal into its conduct are hardly likely to help its case.

The hearing that began last month for KPMG and six of its former auditors closed submissions for evidence Tuesday. The tribunal is focused on allegations by the U.K. Financial Reporting Council (FRC) that KPMG misled investigators inspecting its audits carried out at Carillion and software company Regenersis for 2016 and 2014, respectively.

If the tribunal finds wrongdoing did occur, it has the power to impose unlimited financial sanctions on KPMG and the individuals involved. It can also ban the individuals from the audit profession.

So far, some of the details to emerge from the proceedings have ramifications for KPMG, the audit profession more widely, and potential future regulation and monitoring. Below are several areas where KPMG is likely to face lingering questions, whatever the outcome of the tribunal might be.

Don’t invent documents to lie to the regulator

Lying to a regulator is always a bad move, and KPMG has already admitted doing so (as has one of its former auditors). However, there are disagreements as to the scale of the deception and harm caused.

At the opening of the hearing, lawyers for the FRC said KPMG’s auditors working on the accounts of Regenersis had created documents that were a “fabrication.” These documents were then “passed off” as if they had been created earlier—before the audit had concluded.

Similarly, the FRC alleged auditors created new documents during the inspection of the audit of Carillion’s accounts, including minutes of meetings relating to international aspects of the audits, after the regulator had queried the low number of U.K. construction services contracts KPMG had interrogated at Carillion.

The tribunal was shown an example where additions were made to a document in red font and an email between auditors Alistair Wright and Pratik Paw saying they should “paste” words into documents created earlier that year.

The FRC also alleged a KPMG auditor edited a key spreadsheet formula so contracts worth between £300,000 (U.S. $406,000) and £1.5 million (U.S. $2 million) were no longer flagged for scrutiny.

None of the parties have disputed the documents under question were created and given to FRC inspectors. Wright, a group senior manager, is the only auditor involved who has already admitted “serious misconduct.”

Don’t blame the juniors

Good corporate governance is about effective leadership and setting the correct tone from the top. But when a leader has already left his or her employer under a cloud, he or she can do plenty to further muddy the waters.

Peter Meehan, the former KPMG partner in charge of the Carillion audit, was suspended by the firm in January 2019 and left its employment in January 2021. As part of his defense in the tribunal, he insisted his more junior colleagues were to blame for misleading regulators and there is no evidence he was ever involved.

His counsel argued he was a “patsy.”

Naturally, such a claim led the other former team members—who are of varying experience, with the youngest being just 25 years old when the alleged misconduct took place—to turn on each other during the proceedings.

Given the six individuals might be fighting for their professional reputations, finger-pointing was always a strong possibility. But the allegations highlight unsavory aspects of the culture at KPMG. They also beg the question: Why couldn’t any of these employees raise their concerns to other senior managers at the firm or through an anonymous whistleblowing hotline?

Limited admissions might backfire

Jon Holt, chief executive of KPMG UK, told the tribunal early it was “clear” misconduct had occurred and the FRC was misled. The firm’s counsel said there was “no systemic problem, and none is alleged.”

The firm’s hopes it can limit the public relations damage from its Carillion and Regenersis missteps might be fanciful: Its recent track record is hardly unblemished.

Last month, KPMG was fined £3 million (U.S. $4.1 million) by the FRC over its audit work at now-collapsed alcohol retailer Conviviality. In August, it received a £13 million (U.S. $18 million) fine for helping push mattress company Silentnight toward insolvency so private equity group HIG could buy the business out of administration at a lower price while negatively impacting members of Silentnight’s pension scheme.

Indeed, the heat has been turned up on KPMG’s U.K. practice to such an extent that the Financial Times reported in December the firm had withdrawn from bidding for U.K. government contracts before the Cabinet Office, the department that helps shape the Prime Minister’s policy, had the chance to ban it from winning public sector work.

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