KPMG to cut back audit clients in bid to boost standards
Big four firm KPMG will scale back its audit operation to focus on improving standards after being hit by a string of fines over audit failings in recent years.
Head of UK audit for KPMG Cath Burnet said the firm has already halted work for some of its clients and would now be “selective” about the work it competes for, the Sunday Times first reported.
It comes as more than 70 listed firms put their contracts out to tenders due to compulsory rotation rules.
The decision to scale back its operation comes as KMPG faces a £14.4m fine by the UK’s audit watchdog, after five of its former staff were found to have deliberately misled inspectors during routine inspections of their work on now-collapsed construction firm Carillion.
Last week KPMG was then hit with another £4.5m fine in relation to its audits of Rolls-Royce, taking the fine tally to four this year.
Burnet recently warned clients that the Big Four firm would be ramping up fees by as much as 20 per cent as it boosts the size of its audit teams to drive up scrutiny and standards at the firm.
“We need to make sure that we have the right size book of business. We need to make sure that we’ve got the right pricing to deliver operational separation … and the right clients who also focus on investing in good finance teams,” she said.
Burnet denied suggestions the firm would shrink revenues generated by audit work from £700m to £600m, or to cut back on its 6,900 staff, the Times reported.
The plans from KPMG come as ministers prepare to unveil long-awaited plans to reform audit rules this week, designed to boost standards in the wake of the Carillion scandal.
Sky News reported last night that ministers will reveal the response to a consultation on Tuesday, which will include measures such as increasing the threshold for companies to become defined as public interest entities (PIEs), which carry enhanced disclosures requirements.
KPMG has been contacted for comment.
The audit scale-back comes as regulators try to boost competition in the sector ]and calls grow for the big four firms – KPMG, EY, Deloitte and PwC – to separate their audit operations from consultancy amid criticism of potential conflicts of interest. There are concerns over the independence of audits and the fact the firms also generate fees from consulting, tax and deal advisory work.
The Financial Times revealed last week that EY had become the first of the big four to mull splitting its audit and advisory businesses, with bosses reportedly exploring a potential listing or a sale of a stake in its audit arm.
EY then confirmed on Thursday that it was in the “early stages” of separating the audit business from its consultancy arm.
“We routinely evaluate strategic options that may further strengthen EY businesses over the longer term,” it said.
“We are in the early stages of this evaluation and no decisions have been made.”