KPMG’s bank audits needed improvements for an “unacceptable” third year running and the accounting firm will be closely monitored, Britain’s auditing watchdog said on Friday in an unusually blunt assessment of leading accountants.
The Financial Reporting Council (FRC) said checks of 103 audits by KPMG, PwC, Deloitte, EY, Mazars, Grant Thornton and BDO from 2019 and 2020 showed nearly a third required improvement, only a marginally better outcome than in its previous annual survey.
The results pile more pressure on the government to propose legislation to change corporate governance and the audit market after its consultation on recommendations in three government-backed reviews following the collapse of British retailer BHS and building firm Carillion.
“Inspection results at KPMG did not improve and it is unacceptable that, for the third year running, the FRC found improvements were required to KPMG’s audits of banks and similar entities,” the FRC said in a statement.
KPMG UK, whose major banking clients include Barclays (BARC.L), said the company was committed to delivering high-quality audits and was already working hard to make the necessary changes the FRC had highlighted.
“Whilst we know we have more to do to improve the inspection outcomes, our banking audits are robust and the findings do not call into question our audit opinions,” Cath Burnet, KPMG UK’s head of audit, said.
“We are confident that the steps we have taken to date will result in improvements in future banking audit inspections.”
Decisions have not yet been taken on when the government will publish a response to its consultation, or in exactly what form, a ministry spokesperson said.
The FRC said improvement measures were also expected at so-called challenger accountants BDO, which is headquartered in Belgium, and Mazars, which is based in France.
EY said it was able to maintain audit quality standards despite challenges from the COVID-19 pandemic, but recognised it had more to do.
The ICAEW, a professional accounting body based in London, said the FRC audit check “has lost its way”.
Five of the nine BDO audits and three of seven at Mazars needed more than limited improvements, the FRC said.
Only 44 per cent of BDO’s audits required no more than limited improvements while the equivalent figure was 57 per cent for Mazars and 59 per cent for KPMG, the FRC said.
Mazars said it was disappointed with the findings in this year’s FRC report and it was addressing the issues identified.
“We are fully supportive of the FRC’s efforts in holding our sector to account, and in demanding improvements in the quality of audit work,” said David Herbinet, Mazar’s head of audit.
Scott Knight, BDO’s head of audit, said it was working hard to address specific findings and investing in extra resources such as increasing it audit headcount by more than 250 people or 14 per cent within the last year.