KPMG has admitted for the first time that it misled regulators over the audit of collapsed outsourcer Carillion, as a tribunal heard that its accountants allegedly forged documents to dupe inspectors.

Jon Holt, the chief executive of KPMG UK, apologised for the firm’s behaviour in the run-up to the failure of Carillion, which was given a clean bill of health before collapsing under a £7bn debt pile in early 2018.

He said: “It is clear to me that misconduct has occurred and that our regulator was misled.”

The admission came after the Financial Reporting Council (FRC) accused auditors at KPMG of creating “forged” and “fabricated” documents in an attempt to mislead inspectors reviewing the firm’s audits of Carillion and Regenersis, another outsourcer.

Mr Holt added: “The misconduct that this tribunal will hear about over the coming weeks is disturbing and upsetting for me and for my colleagues.

“This misconduct is a violation of our processes and clearly against our values. It is unacceptable, we do not tolerate or condone it in any way, and I am very sorry that it occurred in our firm.”

Mark Ellison, the FRC’s counsel, told the tribunal that KPMG auditors created a spreadsheet and minutes of meetings to make it look like they were put together during the audit, when they were actually manufactured months after it took place. 

The allegations relate to information provided by KPMG and its staff during an FRC inspection of how it audited Carillion’s financial statements for the year to December 2016.

Similar accusations have also been filed against KPMG in relation to its audit of Regenersis in 2014.

The apology will pile further pressure on the firm following a tumultuous nine months for Mr Holt since he took over as chief executive..

In that time, KPMG has been handed a £13m fine for serious misconduct in its handling of the insolvency of mattress company Silentnight; pulled up by the FRC over the quality of its banking audits; and dropped out of bidding for public sector contracts following criticism from the Cabinet Office.

The FRC opened an investigation after KPMG self-reported concerns related to the Carillion audit, and later widened it out to include Regenersis. It made the formal complaint against the firm and six employees who worked on the audits.

Mr Holt said he was “saddened” that some relatively junior former members of staff were facing “very serious regulatory sanction at an early point in their careers”.

He added: “It is of course for the tribunal to reach a conclusion on the allegations as they relate to the individuals concerned. Nevertheless, it is clear to me that misconduct has occurred and that our regulator was misled.

“We became aware of the misconduct at the centre of this case as a result of our own internal investigations and immediately reported it to our regulator. We have co-operated fully with their investigation since then.”

The FRC said that it does not allege misconduct in the performance of the relevant audits, or claim that the financial statements were not properly prepared. 

The tribunal is expected to last for several weeks and will hear evidence from the FRC and the six former KPMG employees. 

One former employee settled with FRC over the weekend, while the other five strongly deny all allegations.