Big Four firm KPMG is again on the receiving end of some tough criticism from the UK accounting watchdog. The Financial Reporting Council says there has been an “unacceptable deterioration” in the work KPMG carries out for the UK’s biggest companies.
Aside from the question “could there have been an acceptable deterioration?” the criticism is yet another body blow to the reputation of the accounting giant. It will heighten the pressure on KPMG, which has seen itself at the centre of several scandals over the past year, particularly the collapse of Carillion, which KPMG had audited for 19 years.
The FRC, said half of KPMG’s audits of FTSE 350 groups needed “more than limited improvements” and pointed the finger at KPMG’s management rather than its front-line auditors as such.
Our key concern
But the FRC added: “Our key concern is the extent of challenge of management and exercise of professional scepticism by audit teams, both being critical attributes of an effective audit, and more generally the inconsistent execution of audits within the firm.”
KPMG audit chief Michelle Hinchliffe, said: “We are disappointed that our overall audit quality score for our 2016/17 audits has decreased by four per cent 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.”
General decline in quality of work
KPMG’s audit performance was poorer than its Big Four rivals, EY, Deloitte and PwC. Having said that none has particularly shone of late and there has been a general decline in quality of audit work resulting from failures to challenge management and insufficient scepticism. Many are calling for the Big Four to be broken up and for the consultancy and audit functions to be separated.
FRC boss Stephen Haddrill says: “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 . . . firms must strenuously renew their efforts to improve audit quality to meet the legitimate expectation of investors and other stakeholders.”
On a different note, Frank Dunphy, the accountant who helped artist Damian Hirst amass a fortune, is to sell his £10-million collection at Sotheby’s in September. It includes some of Hirst’s work, such as Yellow Ball.
Dunphy was key in reducing the commission paid to art dealers from 50 to 10 per cent when selling Hirst’s work. He also launched a £111-million one-man auction at Sotheby’s in 2008, which replaced the dealer’s cut with an auctioneer’s commission. Hirst’s wealth rose to more than £600 million on the back of the move.
Art. Or artful?