KPMG’s UK audits unacceptable, watchdog says

The focus follows criticism of accounting firms in the wake of the collapse of British retailer BHS and building firm Carillion. 

KPMG faced renewed criticism for the quality of its banking audits after the UK’s industry regulator said it was “unacceptable” that, for the third year running, the accounting firm’s work wasn’t up to scratch.

Across the UK’s seven biggest auditing firms – including Ernst & Young and Deloitte – almost 30% of all bookkeeping was below par in the year to the end of March, according to the Financial Reporting Council’s annual report.

The results pile more pressure on the UK government to propose legislation to change corporate governance and the audit market, as recommended in three government-backed reviews following the collapse of British retailer BHS and building firm Carillion.

“Given the systemic importance of banks to the UK economy,” the FRC said it “will be closely monitoring KPMG’s actions to ensure findings are addressed in a timely manner.”

Additional improvement activities

The firm has agreed to a set of additional improvement activities to be made this year, it said.

KPMG is “already working hard to make the necessary changes the FRC has highlighted”, the firm said in a statement.

“Action taken as a result of previous inspections has not yet consistently yielded the high standards rightly expected of us.”

Deloitte, EY, Grant Thornton, and PwC improved year-on-year, according to the FRC, with about 80% or more of audits requiring no more than limited improvements.

However, the FRC said “these improved results still fall short of our expectations”.

• Bloomberg and Reuters