20 Jun 2018
The Financial Reporting Council (FRC) has hit out at the fall in standards of KPMG’s work in its assessment of the Big 4 auditing firms, and said it will increase its scrutiny of the auditor.
The regulator, which has observed a drop in quality regarding this year’s audit inspection results, has called on the top four auditing firms to “swiftly” reverse the decline in standards if they are to meet set targets for audit quality.
It singled out KPMG.
“There has been an unacceptable deterioration in quality at one firm, KPMG. 50% of KPMG’s FTSE 350 audits required more than just limited improvements, compared to 35% in the previous year,” the FRC said.
“As a result, KPMG will be subject to increased scrutiny by the FRC.”
Across the Big 4, the fall in quality is due to a number of factors, including a failure to challenge management and show appropriate scepticism across their audits, poorer results for audits of banks, the watchdog explained.
The increased FRC scrutiny of KPMG includes inspecting 25% more KPMG audits over its 2018/19 cycle of work, and closely monitoring the implementation of the firm’s Audit Quality Plan.
FRC CEO Stephen Haddrill said: “At a time when public trust in business and in audit is in the spotlight, the Big 4 must improve the quality of their audits and do so quickly.
“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.”
KPMG expressed “disappointment” over the decrease in its overall audit quality score.
“We are taking action to resolve this. We want all of our audits, regardless of size, to meet the highest standards set by the Audit Quality Review,” said Louis Clark, KPMG LLP senior manager.
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