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KPMG warns businesses of audit price hikes

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Amid a wave of scandals punishing the Big Four firm, KPMG has warned its big ticket clients of potential audit price hikes in the near future.

23rd May 2022
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In a move that could see millions of pounds added to the annual bills of some of the UK’s largest companies, KPMG has notified its listed audit clients that the cost of inspecting their accounts could potentially rise by 20%, according to information gathered by Sky News.

Catherine Burnet, KPMG UK's head of audit, recently wrote a letter to clients warning that, because of increasing pressures due to revised accounting standards, audit prices are likely to rise for many of the firm's largest clients.

“Audit quality remains our top priority, and we are committed to delivering consistently high-quality audits,” Burnet wrote in her letter to clients. 

"As you may know, we are facing a number of additional upward cost drivers, notably the requirements of the revised ISA (UK) 315, which we estimate will add between 5 and 20% to base audit costs, as well as significant inflationary pressures in relation to staffing costs and recruitment."

Swelling coffers

KPMG’s decision to warn of incoming audit price rises is likely to leave a sour taste in the mouth of many of their current clients, as the Big Four firm only recently reported a 10% growth in profits back in February of this year, with partners netting themselves an average of £668,000. KPMG's audit division saw net sales grow by 5% from £606m in 2020 to £634m in 2021.

Also, in an attempt to repair its public image while also hoping to gain an edge in what is fast becoming a cutthroat recruitment market, KPMG has also begun offering its junior staff members pay rises of at least £2,000.

Jon Holt, chief executive of KPMG, put the soaring profits down to the macroeconomic issues their clients have faced, with the “triple whammy of Covid-19, climate change and Brexit” being significant drivers in the company’s profits. 

Indeed, it seems that all of the Big Four Firms have managed to produce record profits, flying in the face of regulators who continue to push for further reform of the financial advising giants.

With the Queen’s Speech setting out a range of audit reform measures, including the formation of the Audit, Reporting and Governance Authority (ARGA) to replace the FRC, as well as the introduction of shared audits, these thumping profits may only last so long as the government continues to crack down.

Scandal after scandal

While KPMG has benefited from soaring profits over the last two years, 2022 has also been a particularly bruising year for the Big Four firm as it has battled with a litany of high-profile scandals.

KPMG’s most recent run-in with regulators saw the firm slapped with a £14m fine due to auditors falsifying Carillion’s audit documents. 

The Carillion case in particular has truly shaken the trust in the firm, with its misleading audit of the construction giant leading to its eventual collapse and the loss of nearly 3,000 jobs. KPMG also faced two further investigations and a whopping £1.3b lawsuit due to their mishandling of Carillion accounts, as well as other fines for the mishandling of audits of Revolution and Conviviality.

AccountingWEB has reached out to KPMG, but the Big Four firm has declined to comment on the story.

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Replies (7)

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By Justin Bryant
24th May 2022 09:36

Yes; well how else do you expect them to pay all these multi-million pound fines for audit [***]-ups and yet maintain their obscene oligopoly profits?

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By Michael Beaver
24th May 2022 09:30

And if I were a client being subject to those price increases, I would be standing firm with my middle finger raised in their direction.

There's such a thing as knowing how and when to read the room. Then there's..... this.

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By Gerry Brown
24th May 2022 10:28

“Audit quality remains our top priority, and we are committed to delivering consistently high-quality audits,”

I assume this is a new committment. No indication that the partners are willing to take a lower income.

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By JamesDS
24th May 2022 11:42

"your previous audit did not comply with the law, to comply with the law, your new audit is going to cost you 20% more, because you have to pay for our failures"

Thanks (4)
Replying to JamesDS:
paddle steamer
By DJKL
24th May 2022 14:14

Effectively yes- they (the larger firms) over the years appear to have undercharged the necessary hours required to do the audits correctly so now they are under the microscope they will need to put in the man hours that are really needed.

Catch is the larger quoted entities really have little choice as to where to go and not convinced that a public body, say taking on all "public interest" audits, will do that much better.

Maybe we should scrap external audits but make the board of directors of larger companies collectively responsible for their issued accounts, introduce a quasi judical process /system to apportion blame where failures arise, with its own rules re evidence and proof, and bang up a few very well paid directors whilst saving me (the shareholder) my part in the audit fees- if all FTSE 100 companies paid a levy into a joint fund, next 250 at a lower rate and AIM companies also paying (maybe AIM should pay more per £1 profit) the system might improve, less checking and far more stick when the directors permit the presented accounts to fall short. (And maybe a big boost to internal audit)

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By tedbuck
24th May 2022 13:19

I still think that if I were a plc with KPMG as an auditor I would be thinking twice.

What would my shareholders think of me staying - that there is something to hide that won't be found out or that I don't care whether the job is done properly as long as nothing falls out of the woodwork.

Nice time to increase your fees though - 'We've got fines to pay but don't want to pay it out of our own pockets so your fees are increasing.'

I think I know what my reaction would be - usually encapsulated in two words the second being 'off'. Still I suppose that it gives the client a very big leverage should they need it. Watch this space!

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By FD-HBC
26th May 2022 11:30

In other words, "If you want us to do a proper job you'll have to pay more "

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