Our quality framework is built around seven ‘quality drivers’ – these are factors we believe ultimately drive and control quality. In formal terms, this framework applies to our audit business – but, where appropriate, we use the same framework for Advisory. In audit, we are also subject to regular inspections – and use audit quality indicators to track our performance.
‘Tone at the top’ sits at the heart of our seven quality drivers – it ensures the right behaviours permeate through the organisation. We believe ‘tone at the top’ is about having the right culture and mindset. The other six drivers all depend, to one degree or another, on ‘tone at the top’. Supporting ‘tone at the top’ are our values, Code of Conduct and other internal policies and processes.
We don’t want to work with clients who pose an unacceptable financial, operational or ethical risk – that is why we undertake a thorough assessment of clients before accepting them. This assessment includes background checks on management and owners – it also looks at possible conflicts of interest, issues with independence, breaches of laws or regulations, including those governing corruption and human rights. If necessary, we will ask for additional safeguards – or decline a client if issues can’t be resolved or if clients can’t provide the information we need to carry out our audit.
We have a global audit methodology, set out in KPMG International’s Audit Manual. This methodology goes beyond basic International Standards on Auditing – which, we believe, helps enhance audit quality. The methodology is supported by eAudIT, our digital audit tool (due to be replaced by the end of 2022 by a smart audit platform, known as KCw or KPMG Clara Workflow).
In line with audit standards, we also have clear policies governing personal independence and the regular rotation of partners and engagement leaders (so that no partner or engagement leader stays too long with a single client). In 2020/2021, we carried out 188 personal independence audits (an increase from 141 the previous year).
Quality is built into our HR processes – into training, promotion, remuneration, and performance reviews for both partners and other professionals. It is also the first of three criteria we use to determine variable pay for our personnel – and it’s part of our onboarding process for new recruits. To uphold quality standards, we also need proper planning, and the right balance of skills and experience in our engagement teams. Partners and directors need to demonstrate their skills and commitment with regard to audit quality before being promoted to those positions; for partners, we have a specific program called Audit Quality Curriculum for Partner Promotion.
All KPMG professionals receive training and support. In addition, audit professionals have access to technical support, provided by the Department of Professional Practice (DPP), the Internal Audit & Compliance Office and / or the Quality & Risk Management Group. Auditors can also access support through the KPMG global network. In 2020/2021, formal technical consultations with the DPP on difficult or contentious issues totalled 627 (compared with 689 the previous year). Most of these consultations related to Covid-19 issues; at the same time, there was a decrease in consultations related to fraud, money laundering and anti-bribery, due to recent regulatory changes. Where necessary, we assign specialists to work as part of our audit teams – these specialists work in areas such as IT, tax, treasury, pensions, valuations and forensic audit.
We want our partners to be closely involved in engagements; this helps set the right tone – and ensures audit teams get maximum benefit from the partner’s skills and experience. In many engagements, we appoint independent Engagement Quality Control Reviewers (EQCR) to oversee decisions made by teams on the ground. In Advisory, a second partner fulfils a similar function, helping us maintain quality standards. In 2020/2021, EQCRs were performed on 31% of all legal audit engagements (compared with 30% the year before): respectively 478 in 2020/2021 and 466 in 2019/2020.
Across KPMG, there are integrated quality monitoring and compliance programmes; these help us identify possible areas of improvement. The programmes include our regular QPRs. We also have root-cause analyses based on five distinct steps (see opposite); it is the responsibility of the AQIC to initiate root-cause analyses – and to recommend remedial action, if needed.
The RCA five-step principles
- 1 In Advisory, all projects worth over EUR 1 million are subject to active quality control and monitoring.
- 2 Revised from 110. Please note the number of employees covered by independence audit varies annually.