UK Edition
KPMG slammed in watchdog's damning report of auditors
The accounting watchdog has released a damning report into Britain's big four accountancy firms, singling out KPMG in particular for the "unacceptable deterioration" in the quality of its audits.
The Financial Reporting Council said 50pc of KPMG's audits of FTSE 350-listed companies required more than just limited improvements in the recent financial year, compared to 35pc a year earlier.
Across the eight leading accounting firms, 72pc of all audits required no more than limited improvements, down from 78pc a year earlier, and of those for FTSE 350 companies, 73pc required no more than limited improvements against 81pc in the prior year. The FRC said the accountancy companies "must act swiftly" to reverse the decline if they are to hit audit quality targets.
FRC chief executive Stephen Haddrill said: “At a time when public trust in business and in audit is in the spotlight, 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, in particular in their bank audits."
The report comes after the Government in April launched an inquiry into the FRC amid accusations by MPs that it was "toothless" and "useless".
The investigation, which is being headed up by former Treasury official Sir John Kingman, will decide whether the regulator's powers and governance are "fit for the future".
Pressure has been mounting on the FRC to toughen up rules for accounting firms after a number of high profile cases in which the accounts of a number of companies have been were signed off by their auditors only for those businesses to later collapse into administration.
KPMG, for example, approved Carillion's financial statements just months before the construction business admitted it had overstates revenues, cash and assets, resulting in a shocking meltdown.
PwC, meanwhile, was earlier this month slapped with a record £10m penalty following an FRC probe into the auditing of BHS's accounts before it was sold by Sir Philip Green for £1.
The fine was reduced to £6.5m after PwC agreed to settle early, and a spokesman for the company had said that it was "sorry that our work fell well below the professional standards expected of us and that we demand of ourselves".
In response to the FRC's annual review, released today, Michelle Hinchliffe, head of audit at KPMG, said: "We are disappointed that our overall audit quality score for our 2016/17 audits has decreased by 4pc and that the steps taken in previous years have not resulted in the necessary improvements to audit quality.
"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. "
KPMG said, under its transformation programme, which it launched last October, it had increased central monitoring of audits.
"We cannot and will not be satisfied with these results and, as a firm, we are already working to put this right," Ms Hinchliffe said.
The FRC said it will be increasing its scrutiny of KPMG, including inspecting 25pc more of its audits in the current financial year and "monitoring closely" how it implements its audit quality plan.
It said it was also reviewing whether accountancy companies' actions plans would "effectively address" its concerns and taking "enforcement action" where appropriate.
Hemione Hudson, head of Assurance at PwC, said the business was "using the FRC’s insights, together with our own reviews, to further improve our audit work, policies and procedures".
"The FRC has assessed 84pc of our audits of FTSE 350 companies as good or requiring only limited improvement. While we are disappointed this is slightly down on last year's very strong results and recognise there is more we need to do, the FRC's assessments of our audit quality over the last five years show a consistently high level of audit quality."