KPMG rejects talk of partner cull
4 Nov 2019
Big Four firm KPMG has denied that it is planning to cut around a tenth of its partners in a bid to get the firm back on track and improve performance, saying that around 50-60 partners leave the firm each year through natural churn
4 Nov 2019
This followed months of restructuring at the Big Four firm, which has seen the audit practice heavily criticised by regulators and MPs.
The Financial Times reported that KPMG planned to get rid of around 60 partners out of the firm’s total partner roster of 635, but KPMG denied this was the case.
This level of partner churn is typical at the largest audit firms. Generally, around 50 to 60 partners leave in the course of a year, due to natural attrition, retirement and moves into the private sector where they can get lucrative contracts as non-executive directors, audit committee chairs and in senior finance roles.
A KPMG spokesperson said: ‘It is critical that our firm constantly evolves as we build the mix of capabilities required to service the changing needs of our clients.
‘To achieve this, we are significantly increasing our investment in all of our core businesses - audit, tax, deals and consulting.
‘This year we have appointed 50 new partners and 200 new directors, across all parts of our business.
‘In a typical year around the same number of partners will retire from the firm, often going on to senior roles elsewhere in both the private and public sector.’
KPMG has been under severe pressure to overhaul its audit practice following a series of audit failures at major public interest entities and is currently facing an investigation into its audit conduct over the collapsed government outsourcer, Carilion, which went bust in 2017, facing enormous debts and questions over its accounting approach, including the reporting of future contracts, revenue recognition and cash disclosures.
It is also facing an FRC disciplinary investigation into its conduct over the audits of alcohol retailer Conviviality, which went into administration in April having identified a ‘material error’ in its financial forecasts and an unexpected £30m tax bill earlier in the year. In August, it was fined £3.5m over disclosure issues related client asset reporting at BNY Mellon.
It came in for harsh criticism over its audit practice in the latest Financial Reporting Council (FRC) audit quality inspection (AQI) reports, published in July, although FRC inspectors did say that the turnaround was beginning to show signs that it was working. The AQIs relate to audits conducted in 2018 when the firm’s audit work ‘show[ed] an unacceptable’ deterioration in quality.
In April this year, the FRC launched a wide-ranging review into the governance and culture of KPMG’s audit practice, led by Sally Dewar, chief executive of A&O Consulting. This was a root and branch review of processes and culture at the firm. At the time, her appointment was criticised by MPs as Dewar trained as an accountant and auditor at KPMG and spent 10 years there before leaving to work for the Financial Services Authority, predecessor to the Financial Conduct Authority.
Despite the problems facing the audit practice, the firm is still the UK’s number two auditor of FTSE 100 companies after PwC, according to the Accountancy Daily FTSE 100 Auditors Survey, earning £176m from the 27 companies in this segment and reporting a 13% hike in audit revenue over the last year; it has a 25% share of audit fees at this level. It is also due over the next two years to start auditing three new FTSE 100 clients, BT Group, Rio Tinto and 3i Group, audit business which it won from other Big Four firms.
As part of the firm’s refocus, KPMG announced a major investment in a technology innovation hub in Manchester in Augst, bringing total staff numbers at the specialist site to 100. It is also investing heavily in its legal practice. However, it is selling off its pensions division and in February closed its small business accounting arm just five years after launching the cloud-based platform.
By Sara White