AZSA Quality 2020/21 Initiatives for Enhancing Audit Quality
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AZSA Quality 2020/21 Initiatives for Enhancing Audit Quality October 2020 home.kpmg/jp/azsa AZSA Quality Overview Overview of Initiatives for Enhancing AZSA’s Audit Quality Message from Our CEO P. 2 Responsiveness to change With a global pandemic, developments in digital society and reforms in the way corporate information is disclosed, our society is changing at an unprecedented speed and becoming more complex. KPMG AZSA will continue to fulfil our unchanging mission as an audit firm, while we Expectations of market participants respond to these kinds of changes in a timely Auditing is an infrastructure that supports and flexible manner. the capital markets, and audit firms have a responsibility to respond to the expectations of market participants. KPMG AZSA continuously Responsiveness to change: pursues audit quality in order to respond to Topics Environmental changes 1 such expectations and to be the Clear Choice 02 KPMG AZSA’s initiatives for for our people, clients and the2 public. Review Boards addressing COVID-19 3 P. 10 4 CEO x Public Interest Oversight Responsiveness to change: Topics Committee Online Dialogue Topics Technological innovations 01 Evaluation of initiatives for 03 Digital audit platforms enhancing audit quality by supporting audits in the New the Public Interest Normal era Oversight Committee P. 14 P. 4 Responsiveness to change: Topics Legal amendments 04 Addressing the mandatory application of Key Audit Matters (KAM) P. 20 © 2021 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. AZSA Quality 2020/21 Initiatives for Enhancing Audit Quality Message from the Deputy Managing Partner (Head of Quality Assurance) P. 24 Our Initiatives for Audit Quality Viewed from AQI P. 26 Structure and Initiatives Supporting Audit Quality Audit firms have the responsibility to protect a sound market economy through audits. KPMG AZSA has established a system and is undertaking initiatives for realizing high-quality audits that ensure that no matters arise that may surprise the market. KPMG AZSA’s audit quality is founded on shared 1 Organizational Review basic principles, an open corporate culture, a strong 2 Boards governance structure and the firm’s four defense lines P. 28 3 I. Foundation (Organizational Quality Control System). 4 1 1 2 Review KPMG AZSA’s initiatives aimed at maintaining Boards 2 Review System of and enhancing audit quality are based on our Boards 3 P. 42 3 Quality Control organizational quality control structure of the four 4 II. 4 defense lines At KPMG AZSA, we have prepared an environment in Human Resource which our people can acquire professional knowledge 1 2 Review and skills for providing high-quality services, based on Boards P. 6 8 III. Development an understanding that the basis of audit quality is the 3 quality of our people. 4 KPMG AZSA provides services with value through KPMG Network utilizing the KPMG global network with offices in IV. approximately 150 countries nationwide and its broad P. 78 industry knowledge. Corporate Overview P. 8 5 Compliance with the Audit Firm Governance Code P. 9 0 © 2021 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 1 Message Message from Our CEO Addressing the New Normal era Proactively addressing future risks Fostering true professional As the COVID-19 pandemic There are concerns that restrictions The foundation for improving audit continued to spread across the on corporate activities due to COVID- services, providing high value-added world, Japan faced the challenge of 19 as well as the impact of the services and continuously responding approaching a full-scale peak season recent rapidly deteriorating US-China to the expectations of society, is our for closing audits ahead of the rest of relationship may lead to people. While remote working is now the world. further lack of transparency in becoming the norm, the fact remains corporate performance. Therefore, that ultimately, the trust between Despite this situation, we were able in addition to the reliability of financial people and between organizations is to complete year-end audits without information, the importance of non- most important. any major confusion, thanks to the financial information is expected to understanding and cooperation of We will continue to foster true grow significantly. our audit clients, for which we are professionals who are worthy of deeply grateful. With the disclosure of Key Audit trust through maintaining a high Matters (KAM) becoming obligatory, standard of ethics and integrity, We expect the impact of COVID-19 to having an accurate understanding of and who can think and make continue for some time, and foresee key matters based on more in-depth judgements for themselves as the entering a “New Normal era” in which conversations with the management specialists that they are. KPMG we co-exist with the virus. and relevant parties of audit clients, AZSA aims to become a firm that At KPMG AZSA we will continue to and discussing any risks that may can respond to your expectations work on reducing infection risks, and arise at an appropriate timing, based on a flat and open corporate cooperate as citizens on bringing will be increasingly important. culture that encourages the the pandemic to an end. At the As a firm that is worthy of public acceptance of diversity. same time, we consider protecting trust, we will proactively address the health and safety of our people such issues while focusing on and our clients as a top priority at To be the Clear Choice – future risks in a drastically changing now and in the future all times. With this in mind, KPMG economic environment. AZSA is committed as before to In accordance with the Certified dependably and effectively fulfilling Promoting digital audits Public Accountants Act, CPAs the responsibility of protecting a The ongoing pandemic has brought are obligated to continuously sound market economy through rigorous restrictions on direct complete training programs and audits entrusted to us by encounters between people, which acquire required credits. Recently, the public. have led to limitations on the physical it became evident that some of our handling of certain tasks both for firm’s partners and professionals The pursuit of audit quality is internal control within companies and were involved in inappropriate our top priority for our audits. Therefore, an effective conduct relating to the completion management utilizing data analysis of e-Learning programs within the Maintaining and improving audit and a digitalized progressive audit firm, and consequently did not satisfy quality is our top priority as we is more important than ever before. credit requirements. We sincerely continue to commit ourselves to Our firm will work as one with other apologize for the inconvenience and audit services in order to fulfill this KPMG group entities in addressing concerns caused to our clients and all responsibility entrusted to us by the innovations in the digital field from relevant parties in this regard. public, and thereby gain the implicit all angles. We unreservedly acknowledge trust of all concerned. In particular, we will utilize our new that such conduct lacked the As always, we are committed to audit platform “KPMG Clara” and ethics required of professional realizing effective audits that ensure provide value-added insights in order accountants, and furthermore that that no matters arise that may to promote the digital transformation insufficiencies in the functioning surprise the market. (DX) of audits. of our internal control system © 2021 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG global organization of independent 2 member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. AZSA Quality 2020/21 Initiatives for Enhancing Audit Quality led to this incident. We will take initiatives to prevent a recurrence of such conduct by strengthening our internal control system while thoroughly implementing compliance education. At KPMG AZSA, our Vision is to be the “Clear Choice”, trusted by all stakeholders, now and in the future, through the provision of first-rate services. We have reaffirmed that such trust is gained based on the integrity of each and every one of our members, and all of our partners and employees will practice self-discipline while working to regain this trust. In addition, COVID-19 has presented us with challenging issues. We are committed to responding to the expectations of all those who place their trust in us by transforming ourselves in line with the drastic changes occurring in our environment, and continuously fulfilling our unchanging mission. We have published this brochure for the purpose of introducing KPMG AZSA’s recent initiatives, organizational foundation and quality control system for enhancing audit quality, and the development of talent supporting these aspects of our firm. I hope this will help you gain a clearer understanding of KPMG AZSA’s initiatives for enhancing audit quality. KPMG AZSA LLC CEO Hiroyuki Takanami © 2021 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 3 Topics 01 CEO×Public Interest Oversight Committee Members Online Dialogue Evaluation of initiatives for enhancing audit quality by the Public Interest Oversight Committee An audit firm is said to be a watchdog for the capital markets.