Just over a year ago, audit reports were standardised generic text. However, following the Financial Reporting Council’s new requirements, they became specific to each company. Audit reports are now open about the risks that the auditor had focused on and the work they carried out on those risks – the so-called long-form audit report. At KPMG we field tested reports that went further still, reporting the findings from that audit work. It has received a very warm welcome from investors – as well as global attention. I’m very encouraged by that success.
I’d like to provide these audit reports more widely, so we’re announcing a new policy stating that we will report the findings from our audit work for listed client companies that want it. We’re publishing our policy, “Sharing audit insights – our approach to reporting our findings" (PDF 338 KB) as a public statement so that we can explain our approach and why we have adopted it.
I want to signal our readiness to adopt this reporting for any companies that want it, rather than seeming to select companies, but it is not for us as auditors to impose a 'consensus'. So we have adopted a voluntary approach and are seeking a second wave of companies to help take audit and corporate reporting forward. However, we will respect the choices of those that do not wish to participate just now and ask that others do the same. After all, not everyone wants or needs to be in the vanguard of change.
I’d be grateful if you would take a few minutes to read through our policy, and leave a comment or opinion on this page. This may appear to be a long way from where we started just over a year ago, but audit reports have come far in a very short time. I believe that we need to take these brave steps to shape the future of corporate reporting.
Tony Cates – Partner and Head of International Markets & Government, KPMG in the UK
6. I believe that while these audit reports will be stronger and more robust, I can see challenge from clients on what is included in them particularly on judgemental issues where management and the audit team will have different reviews. Clients will also be less likely to change if it leads to further scrutiny from banks providing finance. Andrew Clark
5. But this is adding clutter to annual reports and we are all against that so I think it is a bad idea.
4. Proactive approach welcomed. This provides the opportunity for shareholder engagement to push for enhanced reports. Phineas Glover, Senior advisor, The Investor Forum
3. Reader needs to be an informed one. The press may pick on points out of context, which could then be wild distortion of the key finding: the clean audit opinion.
2. KPMG writes in the 3-pager: “We presume that it (i.e. the ‘findings’, AS) will move up the agenda as the effective date of the EU audit reforms approaches (2016), because they include what appears to be a requirement to report audit findings.” However, the EU Regulation Art. 10 sub 2 ( c ) (iii) says “where relevant, key observations arising with respect to those risks”. It remains to be seen how much of a requirement that is. E.g. when a KPMG client would NOT ask for a Rolls Royce report, it might argue that the findings are not relevant to users.
So one can envisage quite a debate who decides that. With the IAASB's KAM approach, ISA 701 A46 leaves it to the auditor’s judgment to describe ‘Key observations’ . On one hand, this does not require a client’s request per se; on the other, it is not a requirement
1. Delighted to see us take this step - Helen Brennan, Director, KPMG
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.