KPMG hammered by accountancy watchdog over failings
KPMG came in for stinging criticism over its audit of collapsed firm Carillion.
KPMG has been severely criticised by the accountancy watchdog for an “unacceptable deterioration” of quality in its audit work.
The Financial Reporting Council’s review of audit quality singled out the accountancy giant, which will be subject to increased scrutiny as a result.
“50% of KPMG’s FTSE 350 audits required more than just limited improvements, compared to 35% in the previous year.
“As a result, KPMG will be subject to increased scrutiny by the FRC,” the watchdog said.
KPMG came in for stinging criticism over its audit of collapsed firm Carillion earlier this year, and the FRC has opened an investigation into the group under the Audit Enforcement Procedure.
KPMG was also recently fined £4.5 million by the watchdog over its audit of insurance firm Quindell.
At a time when public trust in business and in audit is in the spotlight, the Big Four must improve the quality of their audits and do so quickly FRC chief executive Stephen Haddrill
The increased FRC scrutiny of KPMG includes inspecting 25% more of the firm’s audits over 2018/19 and monitoring the implementation of its audit quality plan.
KPMG’s new leadership will be made to account for any shortcomings, the watchdog added.
The FRC also took aim collectively at the so-called Big Four – Deloitte, PwC, EY and KPMG – for an overall decline in audit inspection results, urging them to “act swiftly”.
It cited a failure by auditors to challenge management and show “appropriate scepticism”.
Results from the most recent inspections of eight firms – including the big four, BDO, Grant Thornton, Mazars, Moore Stephens – by the FRC show that in 2017/18, 72% of audits required no more than limited improvements compared with 78% in 2016/17.
Among FTSE 350 company audits, 73% required no more than limited improvements against 81% in the prior year.
FRC chief executive Stephen Haddrill said: “At a time when public trust in business and in audit is in the spotlight, the Big Four must improve the quality of their audits and do so quickly.
“They must address urgently several factors that are vital to audit, including the level of challenge and scepticism by auditors, in particular in their bank audits.
“We also expect improvements in group audits and in the audit of pension balances. Firms must strenuously renew their efforts to improve audit quality to meet the legitimate expectation of investors and other stakeholders.”