KPMG’s audit work in the United Kingdom is of an unacceptable standard, Britain’s accounting regulator said, fueling calls to reform the industry, including dismantling Big Four firms.
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.
“Our key concern is the extent of challenge of management and exercise of professional skepticism by audit teams, both being critical attributes of an effective audit, and more generally the inconsistent execution of audits within the firm,” The FRC wrote in the report.
KPMG is still reeling from a scandal in which employees were accused of cheating on audit inspections. The Securities and Exchange Commission filed charges against six certified public accountants—including former staffers at the Public Company Accounting Oversight Board (PCAOB) and former senior officials at KPMG—arising from their participation in a scheme to use confidential information on PCAOB’s planned inspections of KPMG audits. One SEC official charged that KPMG accountants were guilty of “stealing the exam.”