fb

Room for improvement at the Big 4…

Room for improvement at the Big 4…

Oh dear. It certainly wasn’t a great performance by the Big 4 when it came to their annual inspections by the Financial Reporting Council (FRC) in the UK.

The quality of the audits performed had decreased and for KPMG in particular, according to the FRC “there has been an unacceptable deterioration in quality”.

The FRC is an independent body who check the quality of the audits undertaken by the 8 largest firms in the UK. Think of it as “auditing the auditors”.

They rate the quality of the audits undertaken using the following scale:

• Good (category 1)
• Limited improvements required (category 2A)
• Improvements required (category 2B)
• Significant improvements required (category 3)

Overall results from the most recent FRC inspections during 2017/18 show that 72% of audits required no more than limited improvements (compared to 78% in 2016/17). Or to put it another way, 28% of the audits reviewed required improvements (category 2B) or significant improvements (category 3).

For KPMG though things were particularly bad. When the FRC looked at their audits within the FTSE 350 (the largest 350 companies on the London stock exchange), they found that 50% required MORE than just limited improvements (compared to 35% in the previous year).

If you take a step back then this really isn’t very good is it. If you went to a restaurant where 50% of the meals served required more than limited improvements you’d be unlikely to go back to that restaurant again and I’m sure that restaurant wouldn’t be in business for much longer.

KPMG are going to face increased scrutiny by the FRC in the next round of inspections. 25% more KPMG audits will be examined over the 2018/19 cycle of work and the implementation of their Audit Quality Plan will be closely monitored.

So what went wrong?

The FRC noted that there were a number of factors. These included a failure to challenge management and show appropriate scepticism across their audits.

Stephen Haddrill, CEO of the FRC, said “At a time when public trust in business and in audit is in the spotlight, the Big 4 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. We also expect improvements in group audits and in the audit of pension balances. Firms must strenuously renew their efforts to improve audit quality to meet the legitimate expectation of investors and other stakeholders.”

Whilst the level of quality found within the Big 4 audits fell, the performance of the mid tier companies improved. The FRC inspections on BDO, GT, Mazars and Moore Stephens showed general improvements in the quality of inspected audits.

The FRC’s Audit Quality Review is explained in more detail here and if you’re interested in reading the reports on the individual firms they can be found on the following links:

BDO LLP Public Report 2017/18 (PDF)

Deloitte LLP Public Report 2017/18 (PDF)

Ernst & Young LLP Public Report 2017/18 (PDF)

Grant Thornton LLP Public Report 2017/18 (PDF)

KPMG LLP Public Report 2017/18 (PDF)

Mazars LLP Public Report 2017/18 (PDF)

Moore Stephens LLP Public Report 2017/18 (PDF)

PwC LLP Public Reporting 2017/18 (PDF)

Share this entry

Related articles

View All Articles

Recent articles

View All Articles
Big 4 under the spotlight…
May 22, 2024
Title
Big 4 under the spotlight…
Excerpt

Recent findings have shown that Britain’s audit firms did not raise alarms for three-quarters of the major companies […]

Better than the professionals?
May 13, 2024
Title
Better than the professionals?
Excerpt

The landscape of investing is evolving, with the rise of retail, or “do-it-yourself” (DIY) investors who are achieving […]

Don’t get angry over anger management
May 07, 2024
Title
Don’t get angry over anger management
Excerpt

Have you ever been angry at work? If you have then you are not alone. The latest Global […]

Cows or dogs in your portfolio?
May 01, 2024
Title
Cows or dogs in your portfolio?
Excerpt

As well as being included in ACCA, CIMA and CMA (USA) exam questions over the years, the Boston […]

KPMG unlocks previously locked up talent.
Apr 30, 2024
Title
KPMG unlocks previously locked up talent.
Excerpt

KPMG, one of the Big Four accounting firms, has recently announced its commitment to expanding its hiring of […]

Taxing times…
Apr 24, 2024
Title
Taxing times…
Excerpt

Understanding the various forms of taxation is essential for business students worldwide. Taxes serve not only as a […]

From Coins to Codes: A Budgeting Timeline
Apr 22, 2024
Title
From Coins to Codes: A Budgeting Timeline
Excerpt

The concept of budgeting, a cornerstone in both personal finance and corporate management, has a rich history that […]

Italian but not Italian…
Apr 17, 2024
Title
Italian but not Italian…
Excerpt

In the complex landscape of global business, the names of products and brands hold significant power. They convey […]