November 20, 2018

U.K. Accounting Regulator Chides KPMG For ‘Unacceptable’ Decline in Audit Quality

And here I thought Phil Mickelson’s meltdown on the 13th green at the U.S. Open on June 16 would be the worst thing to happen to KPMG this week.

From Bloomberg:

KPMG’s audit work in the U.K. is of an unacceptable standard, Britain’s accounting regulator said, fueling calls to reform the industry, including dismantling the “Big Four” players.

In an unprecedented assessment, the Financial Reporting Council said auditors at KPMG don’t challenge management enough, aren’t sufficiently skeptical and are inconsistent in their execution of audits. The decline in quality over the last five years “is unacceptable and reflects badly” on efforts by previous leadership to improve the work, the watchdog said.

CNN reported that the FRC included each of the Big 4 accounting firms in its review. While there had been a decline in audit quality at PwC, EY, and Deloitte, the situation was worse at KPMG.

An FRC review of 16 audits carried out on firms in the Financial Times Stock Exchange 350 index revealed that half of KPMG’s audits required some or significant improvement, Bloomberg reported. So what is the FRC going to do? It’s going to increase the number of KPMG audits it inspects in the current financial year by 25%.

And here is KPMG’s “disappointed” response to the FRC’s criticism:

KPMG is “disappointed” its audit-quality score has declined and is acting to resolve the issue, Michelle Hinchliffe, head of audit at the firm since 2017, said in a statement on Tuesday.

The firm has begun work “to ensure the highest standards of consistency and rigor are applied across all of our audits,” she said. This includes ensuring senior candidates for promotion spend time at the company’s Audit Centre of Excellence. The audit work appraised by the FRC dates “principally” from 2016, she said.

All of this comes on the heels of KPMG’s role in Carillion’s collapse, which Caleb highlighted in several of his ANR’s this year; the firm being fined £4.5 million by the FRC over its audit of Quindell; and KPMG South Africa losing several high-profile clients, including Barclays Africa and the government’s Auditor-General, and planning to lay off 400 employees following the Gupta and VBS Mutual Bank scandals.

Lefty’s U.S. Open brain fart doesn’t seem so bad after all.

[Bloomberg] [CNN]

Image: Flickr/rjoygamesport

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SHOCKER: Number of Fraud Cases in the Courts is High

In probably the most shocking news of the day, KPMG’s “fraud barometer” reports that the number of fraud cases in UK courts in the first six months of the year are the highest since the firm started issuing the report, 21 years ago.
Here in the states, the big sexy fraud gets all the attention but there is plenty of small fraud to go around. Plus, the bright side is, we’ve haven’t seen anything yet:

“These figures are bad, but the worst is yet to come,” Hitesh Patel, a partner at KPMG, said. “It will be a number of years before the impact of the recession fully feeds through into the fraud statistics.”

So our advice would be for any of you that are nervous about layoffs, look into getting transferred to the forensic accounting practice. You won’t be out of work any time soon.
Record total of fraud cases in court – and worse to come [FT.com]

Ernst & Young Is Here to Help (For a Small Fee)!

ernst_young.jpgWe thought that Ernst & Young was advising the New York Fed on the winding down of AIG out of the goodness of their hearts but it turns out it’s actually about the money.
E&Y could make as much as $60 million advising the New York Fed, which is 50% more than the initial agreement, according to Bloomberg. The NYF is also reimbursing E&Y for expenses, up to 10% of the professional fees. This occurs after the parties had initially said $40 million would be the cap but $60 mil is it, we swear, no more.
And because E&Y is solid like that, the firm is billing out partners and directors at discounted rates ($775/hour). I mean, ’cause, let’s face it, this thing’s a mess and E&Y is going to be working hard, working late, working weekends.
Ernst & Young’s Maximum Pay for AIG Advice Swells [Bloomberg]