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.
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.