A $2 Billion Reminder to Doubt Your Audit Client: Chris Hughes

The collapse of U.K. builder Carillion four years ago is now threatening to inflict more than reputational damage on its former auditor, KPMG LLP. The “Big Four” accounting firm is facing a potential financial hit from a 1.3 billion-pound ($1.8 billion) compensation claim launched on behalf of creditors. Regardless of whether the lawsuit succeeds, it’s a powerful reminder of the critical importance of auditor independence.

An investigation by the U.K. Financial Report Council into KPMG’s auditing of Carillion has yet to be made public. But the defunct company’s administrators aren’t waiting for the watchdog’s findings to be aired. Their complaint, filed in London’s High Court last ...