The Financial Reporting Council (FRC) has published its annual inspection and supervision results for 2020/21 which showed that nearly one third of the audits inspected still require improvement.
The results found that 29% of the audits reviewed, required “improvement or significant” improvement. Quality across firms was “mixed” with improvement measures implemented by some firms.
However, the council raised specific concerns regarding KPMG’s banking audits, claiming that it “did not improve and it is unacceptable that, for the third year running”, the FRC found improvements were required to KPMG’s audits of banks and similar entities.
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. KPMG has agreed additional improvement activities to be delivered this year over and above its existing audit quality improvement plan.
Furthermore, the FRC also expects BDO and Mazars to put in place “additional measures” to support “high quality” audits as they continue to grow.
Cath Burnet, head of audit at KPMG UK, stated that audit quality is the firm’s “number one priority” and that it will not be “content” until its AQR scores reflect the group’s “commitment to audit quality and the efforts we’ve made to enhance it”.
She said: “Much of our recent investment made as part of our Audit Quality Transformation Programme relates to banking audits, where we recognise that action taken as a result of previous inspections has not yet consistently yielded the high standards rightly expected of us.
“Whilst we know we have more to do to improve the inspection outcomes, our banking audits are robust and the findings do not call into question our audit opinions – and we are confident that the steps we have taken to date will result in improvements in future banking audit inspections.”
Sir Jon Thompson, CEO, FRC, added: “While these results show some improvement on last year’s results, this improvement is marginal and significant change still needs to happen to meaningfully improve audit quality.
“High quality audit is essential to maintaining trust and confidence in the UK’s financial markets. If the UK is to retain its position as a world leading professional services marketplace, and a global financial centre, outstanding audit quality and rigorous professionalism is at the heart of this.”