Despite a tumultuous year, Big Four auditing and advisory giant KPMG has reported a leap in profits in the UK. The result will see the average pay of its Partners rise to more than £600,000 each, even after the company’s role in the collapse of Carillion, and a host of other accounting debacles.
By the standards of most other businesses, 2018 would have been considered a difficult year for KPMG. The year began with the Big Four firm being pilloried as it was handed a supporting role in the Grenfell inquiry, despite reportedly having links to a number of companies allegedly responsible for the tower fire, which resulted in 71 deaths. Bowing to public pressure, KPMG hastily withdrew from the engagement; however, more trouble was quickly on the horizon.
When keystone government outsourcer Carillion collapsed in January, KPMG had been the company’s external auditor for a number of years. It emerged that Carillion had been struggling financially for some time, yet continued to take work from the NHS, the Ministry of Defence, and a host of other public service providers in that time. As a result, the Financial Reporting Council (FRC) confirmed that it would investigate the auditing work KPMG had carried out between 2014 and 2016, as well as additional audit work in 2017. MPs later accused the firm and the rest of the Big Four of “feasting” on Carillion’s carcass after banking £72 million for work in the years leading up to the construction firm’s collapse.
KPMG was also fined £3 million in August by the Financial Reporting Council (FRC) after the firm admitted to misconduct in its audits of the fashion chain Ted Baker in 2013 and 2014. That penalty followed a £4.5 million fine by the FRC in June, for its audit of Quindell in 2013. These raps on the knuckle were not the last action by the FRC however, and later in the summer, the watchdog announced it would take the unprecedented step of monitoring a quarter of KPMG’s auditing work for the remainder of the financial year.
Now, however, KPMG has announced that its UK entity has actually enjoyed a major boost in profitability over the last year. The 18% leap to profits of £365 million means that KPMG’s 635 Partners will enjoy bumper annual payouts, rising from £519,000 to more than £600,000 each. The professional services group also reported an 8% rise in revenue to £2.3 billion in the 12 months to 30 September.
The news comes months after MPs further lambasted KPMG as being part of a “cosy club” and “complicit” in the run-up to the Carillion’s liquidation, and it will possibly also lend further to credence to the argument that the UK’s auditing scene is bereft of meaningful competition. The Big Four of KPMG, EY, Deloitte and PwC have attracted constant collective criticism from politicians and regulators, who have even called for them to be broken up. The Competition & Markets Authority is subsequently probing the market to weigh up whether such action would be necessary.
However, KPMG has stressed it does not believe such action is necessary. Despite Bill Michael, Chairman of KPMG’s UK business, having recently confessed to the press, “we are an oligopoly – that is undeniable…”, the firm believes it can make amends of its own volition. One way in which it believes it can do this is via a voluntary ban on doing consulting work for auditing clients. KPMG recently said it would no longer take on such work for FTSE 350 firms it audited, and the FRC has since suggested it would be keen to see this rolled out by the industry as a whole.
Commenting on the announcement, Michael said, “I have been clear that our wider profession faces challenges. In order to safeguard against any perceptions of conflict of interest, we have drawn a clear line between our advisory and audit work for UK-listed businesses.”
Sourced from ConsultancyUK