KPMG UK has been scrutinised by the Financial Reporting Council (FRC) for “unacceptable deterioration” of their audit quality. A half of KPMG’S FTSE 350 audits required more than just limited improvements, compared to 35% in the previous year, according to the watchdog.
It is not only a matter of immediate concern for KPMG but also the other three Big Four firms – PwC, EY and Deloitte. Their audit practises must also drastically improve in order to achieve the targets for audit quality set by the FRC for the financial year 2018/19.
FRC CEO Stephen Haddrill said: “At a time when public trust in business and in audit is in the spotlight, the Big Four must improve their quality audits and do so quickly
“Firms must strenuously renew their efforts to improve audit quality to meet the legitimate expectation of investors and other stakeholders.”
The FRC are going to meticulously inspect 25% more KPMG audits over its 2018/19 cycle of work and also monitor closely the implementation of the firm’s Audit Quality Plan. In the Audit Quality Inspection report for 2016/2017 it has been reported, that there is more for the firm to do in order to achieve the targets for 2018/2019.
The Audit Quality Inspection report for KPMG stated: “The overall quality of the audits inspected in the year, and indeed the decline in quality over the past five years, is unacceptable and reflects badly on the action taken by previous leadership, not just on the performance of front line teams.”
In response to the report released KPMG commented: “We recognise that the actions we have taken in previous years have not resulted in the necessary step change in improvement to audit quality which we had envisaged. We cannot, and will not, be satisfied with this and, as a firm, are committed to putting it right.”
Across the Big Four there has been a decline in quality, the FRC reports that this could be due to a number of factors. Those include a failure to challenge management and show appropriate scepticism across their audits, poorer results for audits of banks.
Last week KPMG UK was fined £3.2m over the audit of insurance tech company Quindell.
PwC was also finned £6.5m in the same week for their audit work on the failed retailer BHS.
Following the collapse of Carillion the Big Four have been under increased spotlight in the UK. Last month a parliamentary committee has asked the Competition and Market Authority (CMA) to investigate whether the Big Four should be broken up due to their dominance in the listed company audit market.