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KPMG reveals audit report overhaul

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23rd Sep 2014
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KPMG has invited all its listed client companies to include in their annual reports broader qualitative commentary from the auditor.

The Big Four firm's approach is revealed in a new report called, ‘Sharing audit insights – our approach to reporting our findings’. 

Its move away from minimum regulatory requirements towards offering long-form audit reports follows a positive response by audit committees, management and the investor community to ‘pilot’ reports for three audit clients.

The firm’s field-testing of the approach included Rolls Royce Holdings earlier this year.

Tony Cates, UK head of audit at KPMG, said: “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,” Cates said.

AccountingWEB contributor Steve Collings said the audit report had been the subject of a lot of criticism in recent years, largely because of the technical jargon contained within it and the limited amount of information it gives.

“Some users of audit reports have claimed them to be meaningless to the non-financially orientated because of the language used,” he said. “Regulators are trying to get the audit report to actually ‘mean something’ to interested parties in terms of the information it conveys so I think this is a step in the right direction for KPMG. We may see other larger firms adopting such an approach if this proves to be a hit at KPMG.”

Cates added that the Financial Reporting Council’s 2013 audit report reforms were a big step forward in increasing transparency, but that they wanted to take things 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,” he said. “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. 

Simon Collins, UK chairman of KPMG, also said that it would enable the firm 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.”

As of today KPMG will be inviting client companies to take up its offer and is discussing its new approach with the wider stakeholder group.

Replies (2)

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By kestrepo
24th Sep 2014 10:25

Fees

In practice the bigger the fee the better the comment.

 

 

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By peterlashmar
24th Sep 2014 14:49

new style audit reports

This all sounds excellent news - making annual accounts easier to be understood by non-accountants.

 

Some examples would be very useful!

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