This approach extends beyond the Financial Reporting Council’s (FRC) requirements for long-form audit reports and follows KPMG’s field-testing of the approach with three audits, including Rolls Royce Holdings plc, earlier this year.
KPMG has today announced its new approach to audit reports: ‘Sharing audit insights – our approach to reporting our findings’ (PDF 338KB). Going beyond minimum regulatory requirements, the firm is inviting all listed client companies to include KPMG’s findings in so-called ‘long-form’ audit reports, which are published in a listed company’s annual report.
This approach extends beyond the Financial Reporting Council’s requirements for long-form audit reports and follows KPMG’s field-testing of the approach with three audits, including Rolls Royce Holdings plc, earlier this year.
Tony Cates, UK Head of Audit at KPMG, commented:“Until recently an audit report gave a binary yes/no opinion on a company’s accounts in heavily standardised, generic text. It was boilerplate and there was a lack of transparency as to the auditor’s more detailed findings behind the scenes.
“The financial crisis brought the audit profession sharply into focus: the profession had, in almost all cases, complied with the standards but there was a gap between what the regulations demanded and what the investors and public more widely expected. There was a loss of trust in audits and so in accounts. The profession needed to change.”
To address this, the FRC issued new requirements in 2013 for a so-called ‘long-form’ audit report. Those reports revealed, for the first time ever, what specific matters the auditor saw as the major risks at an individual company and what work the auditor had done on those matters.
Cates went on to say: “The FRC’s reforms have been a big step forward in increasing transparency. But we took the FRC’s new requirements and went further still. In three pilot audit reports we included commentary from the individual senior audit partner. This discussed qualitative matters in order to help give colour, depth, and emphasise areas of risk that concern management, audit committee and investors alike.
“Because of the success of our three pilots, we will now offer such audit reports more widely. These audit reports, and the financial statements they report on, will stand out: they will look different and give shareholders even better insight.”
Simon Collins, UK Chairman of KPMG, added:“I am really excited about the contribution our firm cn make to improving UK corporate governance. The economic crisis has been painful, with many companies and society as a whole still picking up the pieces. I believe passionately that the audit profession can be a part of the solution.
“Today’s announcement is another step in that direction. It will enable us to work with more companies on increased transparency, shaping the future of audit and corporate reporting. There is certainly no requirement for client companies to take up our offer and, indeed, extended reporting may not be appropriate for all companies at this time. We hope, however, that management teams will debate the proposal with their boards, audit committees and, in particular, their key investors. These kinds of audit reports will contribute to greater transparency, insight and trust.”
KPMG will be inviting client companies to take up its offer from today and is discussing its new approach with the wider stakeholder group, including major investors and regulators.
In order to include the findings in the long form audit report, the client must engage the firm to do so before the work for the final annual audit commences.
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Notes to Editors:
Margot Cowhig, Senior PR Manager
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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 approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 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. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.