Following publication by the UK Competition Commission (‘the Commission’) of its provisional findings into the supply of statutory audit services, KPMG notes the emphasis that the Commission has placed on the need for auditors to be independent and objective in serving the shareholder and investor community for the marketplace to operate effectively.
KPMG fully shares that view and notes the Commission’s finding that most audits are performed diligently and with appropriate challenge. Therefore, KPMG rejects the assertion that auditors’ focus is too often on management and that shareholders are not being properly served.
Simon Collins, Chairman and Senior Partner of KPMG in the UK, said: “We believe that audit quality and competition in the UK is strong. We fully recognise our duty to shareholders and the absolute importance of our independence. Audit objectivity and appropriate levels of scepticism are the mainstays of what we do".
“We do not agree with the Commission’s conclusion that, effectively, audit committees are not doing their jobs properly. In our experience, audit committees in the UK generally take their responsibilities seriously, both for oversight of the external auditor and financial reporting more generally. Indeed if audit committees were not functioning properly, it would have much more fundamental ramifications for UK corporate governance".
“We want to see the relevance of audit enhanced and we have been working with stakeholders to achieve this and to improve audit quality. We therefore welcome those remedies that the Competition Commission has put forward for consideration which support those objectives".
“However,we do not support their suggestions as regards mandatory tendering or rotation. After long deliberation and consultation, the FRC has only just introduced tendering every ten years on a “comply or explain” basis and this is already having a significant impact. We supported this measure as we believe it fits with the corporate governance framework in the UK and reinforces audit committee oversight of the external auditor. Arbitrary pre-set periods will do the reverse and potentially damage audit quality, and forced rotation will undermine audit committees and actually reduce shareholder choice. It is premature, therefore, to disregard the FRC measures as an effective remedy.”
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KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.