KPMG publishes first integrated report after audit failures
KPMG’s revenue in 2018 year shrunk as the firm bled clients, but it has now published its first ever integrated annual report
KPMG says it is confident that it will regain clients' trust and be able to serve more listed companies and public-sector clients again.
The disgraced auditing firm published its first ever integrated annual report on Thursday and said it hopes its transparency will convince clients, the public and regulators that it is on a renewal path.
“Given the public concerns about the behaviour of audit firms after all the reported audit failures, there is a demand for increased transparency. Having experienced a crisis as KPMG, we felt that we must, as a matter of urgency, be much more transparent,” said KPMG chair Prof Wiseman Nkuhlu.
Nkuhlu said KPMG has put more emphasis on understanding what its advice reports will be used for in the public sector. For listed private-sector companies, he said that when the firm is awarded an auditing contract, it no longer offers other services, especially advisory work.
KPMG has bled clients over the past two years following revelations of KPMG’s handling of the Gupta and VBS Mutual Bank audits, as well as the discredited forensic report for Sars. The firm’s revenue in 2018 shrunk by about R1bn to R2.4bn. Nkuhlu said the firm’s advisory business was the hardest hit.
Public-sector clients are among those who jumped ship. Auditor-general Kimi Makwetu announced the termination of public sector audit contracts with KPMG in early 2018 .
KPMG and Nkonki, whose contracts were also canceled, had been doing public-sector audits on behalf of the auditor-general for years.
Nkuhlu said KPMG is now more inquisitive when taking on new clients and working with government-linked entities, and has made presentations to demonstrate this to the auditor-general. “I’m optimistic, following the representations we’ve made to the auditor-general.” He said that despite concerns in many of the state-owned entities (SOEs), KPMG will still take public institutions as clients, but its risk management will be tighter.
In the past, said Nkuhlu, the firm accepted whatever reports potential clients presented after doing regular background checks. The firm was even less inquisitive for clients that were already on its books as long as there was nothing negative about them in the public domain that necessitated a review of the relationship.
KPMG is the second auditing firm in SA to produce an integrated report providing full details of its business. In the later part of 2018, Deloitte Africa also published a transparency report for the first time.
The KPMG intergrated report includes the findings of its 2018 quality performance reviews in which it uncovered a number of concerns, including auditors who were not properly documenting the procedures they followed during audits. Some had no paper trail to show how they satisfied themselves that there were no red flags about debtors’ ability to repay audited companies, or that impairments were not out of hand, among other things.
“We are now paying a lot of attention to this. We emphasise that there must be comprehensive and detailed paper trail,” said Nkuhlu, adding that KPMG implemented an audit quality plan from the beginning of 2019 to ensure these concerns do not recur.
Nkuhlu said the firm’s costs for carrying out assessments and audit reviews have increased as all audit files now have to be reviewed by independent partners.