Downer blames KPMG for action

Downer EDI has dragged KPMG into a shareholder class action against the company which alleges it failed to keep the market appraised of problems with a $600m AusNet Services contract, with the diversified services firm lodging a third party action and “proportionate liability” claim against its auditor.

KPMG on Monday said in response it would seek to resign as Downer’s auditor immediately, and that it had full confidence in the work it had done.

The class action – now a consolidated suit after three separate actions were joined – relates to “accounting irregularities” in the company’s utilities division which were disclosed to the ASX on December 8, 2022.

Downer says it “intends to vigorously defend” the action, and on Monday filed its defence, as well as the cross claim against KPMG.

Downer said in December 2022 that there had been “historical misreporting of revenue and work in progress in one of Downer’s maintenance contracts”, however did not reveal who the customer was.

“Based on information currently available, the irregularities are estimated to result in a historical overstatement of pre-tax earnings in the order of $30m-$40m at the end of November 2022 accumulated across financial years 2020, 2021, 2022 and 2023,” the company said at the time.

The claim alleges that Downer was using a bespoke system to manage the accounting function relating to the AusNet contract and its “control systems did not uncover the early recognition of revenue in the AusNet contract for a long time”’.

The action says that by continuing to make public statements about the AusNet contract or failing to correct previous statements, the company “engaged in conduct which was misleading or deceptive or likely to mislead or deceive’’.

KPMG said on Monday it was “disappointed by the decision of Downer EDI to commence proceedings and would vigorously defend the claims”.