Trust is our license to operate and the key to unlocking positive impact and value for our stakeholders. At KPMG N.V., we recognize there can be no trust without quality. Investors, companies, and wider society trust our Assurance work – including high-quality audits – to support a system of reliable communication and verification, while our clients trust our Advisory services to provide clear, insightful, and reliable advice. We focused in 2023/2024 on continuously improving the quality of our services and reinforcing our ethical culture, thereby affirming and strengthening our stakeholders’ trust in the systems that underpin our society.
Committed to excellence in audit quality
Quality remains our top priority at KPMG N.V. and a crucial lever for maintaining and growing trust. While this applies across all three of our business functions, audit quality (new window) within Assurance is of particular importance. Performing high-quality audits – complete, accurate, and reliable – is essential to ensuring public trust, as shown by the attention given to audit quality by society, clients, investors and shareholders, regulators, and other stakeholders.
Our approach to ensuring audit quality starts with accepting the right clients: the right number to ensure the optimal work volume for our teams, and the right mix to ensure the optimal risk profile across our portfolio. We also consider our own expertise and experience in certain industries, prioritizing clients in the sectors where we know we can add the most value.
Our people are also of critical importance. After all, audit quality is not just about reaching the right opinion; it is also about how we reach that opinion. In today’s tight labor market, where qualified auditors are in high demand, we take care to ensure the right skills mix for every client engagement. We assign the right people to the right projects, develop our teams’ skills, and use digital tools to extend the capabilities of our audit professionals (see Digital & innovation (new window)). Using our predictability, teaming, and open communication (PTO) way of working as standard helps our people manage their work volumes and personal circumstances, supporting a better work-life balance and helping us retain the talented people we rely on. We also use an engagement management life cycle (EMLC) approach to help Assurance teams accelerate audit work, reduce peak workloads, and monitor progress more effectively. Together, PTO and EMLC improve teams’ project management to enable more streamlined, high-quality audits.
We also want our auditors to be led by our values in their work. Independent and ethical behavior is as essential for audit quality as it is for our culture at KPMG N.V.; accordingly, in 2023/2024, we focused on reducing independence violations by improving communication, providing more guidance, and increasing checks in relation to this topic.
To track our audit quality performance and address any risks, we follow the KPMG Global Quality Framework, which includes specific AQIs (new window). KPMG N.V. also has its own System of Quality Management (SoQM), aligned with international standards such as the International Standard on Quality Management (ISQM 1). Where appropriate, we also use the SoQM to guide how we monitor and manage quality in our Advisory and Business Services functions.
The impact of CSRD
The twin transition on digitalization and sustainability (new window) means our people must keep up with shifting technological and regulatory developments. CSRD, for example, requires our people to learn and upskill, so they can provide high-quality, trustworthy assurance on sustainability reporting. We have implemented a CSRD training program to increase our capacity to meet client demand, while also rolling out new software to support the execution of CSRD-related engagements (see People (new window) and Digital & innovation (new window)).
Our audit quality approach must also respond to changes in the business environment. Because of its critical importance to our business, audit quality has been identified as an entity-specific material topic for KPMG N.V. For more information on our related impacts, risks, and opportunities, as well as our policies, actions, targets, and metrics for managing them, see the Governance (new window) chapter of our sustainability statement.
Building trust with our clients
With trust in our organization – and in our sector as a whole – under scrutiny, we focused on fostering trust through strong client relationship management during the year. We held frank conversations about the answer-sharing investigation with our clients and other external stakeholders, communicating proactively and honestly about what we found out, how we were responding, and how we will ensure we improve. Committed to living up to the high standards we expect of ourselves at KPMG N.V., we believe we are in a strong position to lead change within our firm and for our clients, putting our values first in everything we do.
We also stepped up our thought leadership activities during the year, sharing our knowledge and expertise on AI, the energy transition, and other topics within and beyond the ESG sphere in numerous occasions. Examples are our report on management-level bonuses linked to ESG; publishing our KPMG Climate Letter, informing our clients and other stakeholders about our audit approach to climate issues; and sharing advice and insights on CSRD and its implications for companies (see our website (new window)). Our thought leadership program is an important part of our strategy and a valuable pillar of the KPMG brand. It enables us to position our firm as a trusted voice on a wide range of topics that are of interest to (potential) clients and candidates.
External reviews, inspections, and interactions with regulators
As KPMG N.V., we operate in a highly regulated market, with external reviews and inspections forming an integral part of our operating environment. In 2023/2024, the Authority for the Financial Markets (AFM), the main regulator of the financial sector in the Netherlands, placed our project to remediate and prevent answer sharing under enhanced supervision. This means that our firm is subject to a supervisory program, conducted by the AFM, which focuses on our remediation efforts, including our culture of ethics and integrity.
During the year, we started implementing the remediation steps of this supervisory program. This included additional measures to prevent and detect answer sharing in the future, as well as multiple RCAs of cultural dimensions where we need to improve. To facilitate this process and move in the right direction, we launched a company-wide culture program, Values First, which will be further rolled out in 2024/2025.
We also discussed several topics with the AFM during the year, including its plans for oversight on assurance on CSRD reporting and the alignment of our process for notifying the AFM on signals and incidents. To further enhance our signal and incident management system, we designed and implemented an improved process to ensure compliance with the latest regulatory requirements.
The AFM conducted a thematic review focused specifically on the engagement quality control review (EQCR). As part of this inspection, the AFM reviewed our system of quality control for EQCR, noting no findings and one best practice. The AFM also reviewed four engagements with findings in two reviews. The AFM issued its public report in March 2024.
In June 2023, the AFM issued a critical sector-wide report based on its review of the identification of fraud risks in 2023. KPMG was not included in this review. This report is currently being followed up by a sector-wide AFM inspection into audit firms’ procedures relating to identified fraud risks in audit engagements. Four KPMG audit files were reviewed on this topic as well. We expect the results of this inspection in 2024/2025.
During 2023/2024, we reported seven incidents to the AFM (2022/2023: four). These related to two material accounting restatements in prior period financial statements, an external signal received regarding our investigation into answer sharing, and four cases related to a breach of independence rules by our Assurance professionals. We are performing an RCA of the reported incidents and have taken additional measures to avoid similar incidents in future.
In April 2024, KPMG N.V. reached a settlement with the US Public Company Accounting Oversight Board (PCAOB) concerning the investigation into answer sharing. Furthermore, the PCAOB conducted its regular three-year inspection of our SoQM in May/June 2024, reviewing three engagements. At the time of reporting, we are awaiting its report on the results of this inspection. The Royal Netherlands Institute for Chartered Accountants (NBA) inspects audit firms on a six-year cycle, with its previous inspection of KPMG N.V. having taken place in September 2022.
Outlook
With society’s expectations of professional services increasing, our focus on trust and quality will continue in 2024/2025. KPMG N.V. will also participate in a pilot program on new sector-wide AQIs, led by the NBA, aiming to increase trust in the audit profession. Meanwhile, we will continue investing in training and development for our people. In this way, we will ensure that quality and integrity is fully embedded in all we do, underpinning our systems, processes, and behaviors and promoting trust among our stakeholders.