In 2021/2022, we again maintained very high quality standards.
In Assurance, 84% of engagements were rated satisfactory in internal reviews, unchanged from the previous year. At the same time, the number of findings went down – i.e. deficiencies in compliance with audit standards. External reviews were also positive:
The AFM (new window) reviewed three engagements, rating them satisfactory – in line with results from our own internal QPRs.
From its review, the Royal Netherlands Institute of Chartered Accountants (new window) concluded that the design, implementation and operating effectiveness of the System of Quality Management complies with the Auditors’ Profession Act (new window).
In the US, we are working with the US Public Company Accounting Oversight Board (PCAOB (new window)) to address findings from its 2021 review.
In Advisory, 99% of engagements were satisfactory, compared with 98% in 2020/2021. Rates for advisory have been at 97% or above for four successive years now.
Consistently high scores across both assurance and advisory demonstrate KPMG N.V.’s strong internal quality culture and management.
We see partner involvement as a way of further improving quality. Our approach is to deploy partners in often complex areas where they can make a positive difference to audit engagements. In 2021/2022, our partners accounted for 8% of all audit engagement hours with public interest entities (PIEs) – and 7% for non-public interest entities. Both percentages are close to the KPMG-wide benchmarks (10% and 6% respectively). Excluding very large engagements, partner hours would rise to 10% for PIEs and remain at 7% for non-PIEs – very large engagements tend to reduce the percentage of partner hours since a proportionally higher number of engagement hours are accounted for by non-partners.
To help improve quality, we also keep a close track of complaints and potential violations. Results from 2021/2022 show:
We have identified 0 independence violations within the firm (2020/2021: 9). Over these years, none of the violations impaired the independence of the firm.
We have reported 4 formal incidents to the AFM (new window) (2020/2021: 0):
Two of these reports were related to certain events at audit clients of which we gained knowledge as auditor.
The third incident reported to the AFM (new window) related to the fact that on 19 October, the US audit regulator PCAOB (new window) announced settled disciplinary orders sanctioning KPMG Accountants N.V. for failing to disclose on PCAOB Form AP the participation of an unregistered firm in the audit of a public company. KPMG Accountants N.V. erroneously disclosed that a registered affiliate had participated in the audit, when in fact a separate, unregistered firm had done the work. In our case, working with an unregistered (member) firm was according to the rules. KPMG Accountants N.V. has corrected the Form AP. This administrative error was highlighted and corrected at our own initiative. This was actioned after the deadline for submission had passed. A settlement of USD 50.000 has been agreed with the PCAOB.
The fourth incident reported to the AFM (new window) concerns an investigation KPMG initiated into possible irregularities regarding answer sharing in mandatory training tests. The investigation was started after the KPMG Compliance Office was notified. Integrity and excellence are the foundation of our organization and culture. We take notifications like these very seriously. The AFM (new window) and PCAOB (new window) were notified and are regularly updated on the progress of the investigation.
We recorded 82 quality-related matters (2020/2021: 82). The majority were related to QPR ratings, restatements of financial statements and recidivism of the timely completion of mandatory e-learning courses and confirmations. Other Discipline-related exceptions mainly related to late completions of annual compliance affidavits, mandatory e-learning courses and timely updates of our tracking system for personal investments (KICS) during the reporting year.
We received 11 reports or complaints (2020/2021: 7) through our whistle-blower hotline (new window) and all were followed up. At year-end the follow-up of one whistle-blowing report is still in progress. This concerns the investigation initiated into possible irregularities regarding answer sharing in mandatory training tests (see above).
Over the past year, we also started implementation of KPMG Clara (new window) following an initial pilot phase and adopted a new Global Quality Framework in line with the ISQM 1 (new window), which came into effect in October 2022:
For us, KPMG Clara (new window) is an important step towards a data-driven audit. During the year, we began our roll-out, due for completion by the end of 2022/2023. The new system will make audits even more effective, efficient and consistent. It will also improve communication with clients – and provide more insights, particularly into areas of risk, as we will be able to analyze larger data pools and ‘root causes’ of outliers and other anomalies, while safeguarding data security. KPMG Clara uses advanced data analytics, AI and cloud technology – the platform will evolve as new technologies become available. Alongside KPMG Clara, we have also moved to a new KPMG Audit Execution Guide, replacing the current KPMG Audit Manual. We expect the roll-out of KPMG Clara to be complete by end 2023.
Meanwhile, our new Global Quality Framework will bring us into line with ISQM 1 (new window). The Framework – adapted from our previous quality framework – is built around our quality drivers, which range from culture and values to knowledge, communication and diversity. The new Framework won’t change the way we manage audit quality, though it may mean different ways of documenting decision-making.
- 1During the year, the AFM (new window) also published a report, saying that it was “mainly positive” about insights into quality provided by reviews at Dutch audit firms, including KPMG N.V. The report, published in December 2021, compared audit firms’ internal quality reviews with the AFM’s own reviews. The AFM report covered not only the reviews’ outcomes, but also design and implementation.
- 2As part of its review, the PCAOB (new window) inspected three audit engagements, all carried out in 2020. The PCAOB’s findings relate to one of these engagements and aspects of our system of quality management. After studying the findings, we concluded that there was no impact on the audit report issued. The PCAOB’s inspection of the system of quality management was carried out separately (covering various aspects, including tone at the top, independence, training and consultation).
- 3Please note that Assurance and Advisory satisfaction rates are not directly comparable because of fundamental differences in the reviews’ approach, methodology and assessment. See also our Global Quality Framework - Internal quality reviews (new window).
- 4Defined as Organisaties van openbaar belang in Dutch, under the Netherlands’ Audit Firms Supervision Act (new window) (Wet toezicht accountantsorganisaties, Wta, in Dutch), Article 1.p.
- 5Very large engagements are those involving significantly more hours than other engagements.
- 6Please note that this figure was mistakenly reported as 9 in our 2020/2021 report due to an internal processing error.