Audit

FRC welcomes KPMG’s good practice, identifies areas of improvement

KPMG was instructed to embed the new gifts and entertainment system, which is said to have gone live on 1 December 2021, to ‘ensure pre-approvals are sought from the firm’s ethics function in advance’

The FRC has welcomed KPMG’s good practice but identified areas of improvement as it released its audit inspection report of the firm, which was performed based on the policies and procedures the firm had in place on 31 March 2021. It also set out to review the firm’s quality control procedures. 

The council reportedly identified key points where the firm needed improvements such as in its guidance on how to consider the perspective of an objective, reasonable and informed third party when taking decisions relating to ethics and independence. 

In addition, KPMG was instructed to embed the new gifts and entertainment system, which is said to have gone live on 1 December 2021, to “ensure pre-approvals are sought from the firm’s ethics function in advance”.

However, the FRC also identified some areas where the firm has reportedly shown good practice, such as in its ethics function which can access non-audit fee information from KPMG’s global finance system for approved services to UK PIESs and their international subsidiaries. 

The firm also requires group audit teams to discuss with component audit teams how their systems and processes support them in complying with the revised standard requirements, which the council approves of. 

In 2019, the FRC had revised certain requirements contained within the ethical standard for auditors, which reportedly became effective for audits commencing on or after 15 March 2020. The focus of the revisions was to enhance the reality and perception of auditor independence, necessities both for auditors to form objective judgements about the entity being audited and for stakeholders to have confidence in the outcome of the audit. 

The revised standard was said to also strengthen the role and authority of the ethics partner in firms and expand the definition of the important objective, reasonable and informed third party test, against which auditors “must apply judgements about matters of ethics and independence”.

It is reported that KPMG also has detailed guidance for group audit teams, which includes examples of the conditions and relationships that could compromise the independence of network or non-network firms that assist in the conduct of an audit engagement.

Sir Jon Thompson, chief executive of The FRC, said: “While it is encouraging to see some improvement in audit quality at the largest audit firms, consistent, long-term improvement is still required across the market. 

“We will closely monitor the potentially negative impact on the public interest that the de-risking by firms of challenging audits may have on audit quality.”

He added: “The FRC will continue to build on our assertive supervisory approach to ensure firms are consistently delivering high quality audits, which will drive increased choice and resilience in the market over time.” 

Show More
Back to top button
[class^="wpforms-"]
[class^="wpforms-"]