Shamed KPMG under fire over botched audits
SCANDAl-HIT KPMG was lambasted by the industry watchdog last night for an ‘unacceptable deterioration’ in the way it checks companies’ books. The accountancy group, already under fire for failing to spot the collapse of infrastructure company Carillion, has been put on special watch by the Financial Reporting Council ( FRC) following an annual review of its work.
The move is highly embarrassing for KPMG and follows criticism over its work for a host of companies including Carillion, Co- op Bank, Rolls-Royce and Quindell.
The FRC said the quality of work had also dropped at KPMG’s rivals, highlighting too little scepticism and failure to challenge management. It said audits of banks were particularly poor.
Rival PwC was fined a record £10m a week ago for failing to spot problems with BHS ahead of its collapse with the loss of 11,000 jobs. And there are growing calls for the main four audit firms – KPMG, PwC, Deloitte and eY – to be broken up amid concern that too little competition makes them do their jobs badly.
Stephen Haddrill, chief executive of the FRC, said: ‘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.’
Reviewers looked at 24 audits done by KPMG during the year 2016-17. It found that half of its audits of FTSe 350 companies required improvements, compared to 35pc the year before.
That was far higher than the 27pc of FTSe 350 audits needing improvements produced by all eight firms covered in the FRC’s review.
The watchdog wants accountants to bring that down to 10pc. It said KPMG was the only one to have gone through ‘ unacceptable deterioration’.
Referring to KPMG, it said: ‘The overall quality of the audits inspected in the year, and indeed the decline in quality over the past five years, is unacceptable.’
It will inspect 25pc more of KPMG’s audits next year.
Questions are already being raised over how well KPMG challenged Carillion’s management in particular. KPMG signed off a rosy set of accounts just four months before the builder wrote- off £845m, triggering its collapse.
KPMG said chairman Bill Michael, who took over from Simon Collins in 2017, has put in place changes to try and turn things around, including more monitoring and technology.
Michelle Hinchliffe, head of audit at KPMG, said she was disappointed adding: ‘We cannot and will not be satisfied with these results and, as a firm, we are already working to put this right.’