UK Transparency Report 2020 January 2021 kpmg.com/uk UK Transparency Report 2020 Our year in numbers Audit engagements rated Audit engagements that Revenue from Audit and 1 or 2a by the FRC’s AQR have been subject to the firm’s directly related services Quality Performance Review 61% 144 £639m (2019: 76%) (2019: 124) (2019: £631m) Women in Audit BAME colleagues in Audit Ethics Champions 45% 29% 123 (2019: 44%) (2019: 29%) (2019: 113) Members of our UK Audit FTSE 100 companies who attend our ‘Explore’ workshops to encourage Committee Institute Audit Committee Institute events open, honest discussions about behaviour and culture 2,800 68 257 (2019: 2,800) People Survey respondents that Audit professionals working in Number of colleagues trained to use say our commitment to quality is transformation, data & analytics, the new KPMG Clara workflow apparent on a daily basis and information risk 88% 810 1,000 (2019: 84%) (+20% on prior year) © 2021 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 2 UK Transparency Report 2020 Contents © 2021 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 3 UK Transparency Report 2020 Audit plays a crucial role in the UK’s economy We’re responding to the changing expectations of audit and auditors, and in many areas, we’re leading the way. In doing so, we’re creating a stronger, more resilient, audit business, one that will support the UK’s economic recovery. Our firm has been supporting the We’ve also taken the lead in terms UK’s businesses, communities of performance management: audit and people for 150 years now quality and values-based behaviour and throughout that time, audits are the metrics we use to measure have played a vital part in the UK’s success. The support of our Public economy. Of course, over time, Interest Committee – which brings Bill Michael people’s expectations of audit have independent challenge and oversight UK Chair and Senior Partner changed. They’re demanding more of – has been invaluable. the audit product and profession. The Of course, there is still a lot more to reviews and inquiries over the past do to enhance public trust in audit. two years have helped identify what As a firm, we support operational needs to change. And we’re leading separation of the audit practice from the evolution of audit, with both ideas the rest of the firm in the UK and we and action. are well prepared for it. Our work this year, which includes Audits play a vital role in the UK changing our governance structure economy and they’ll continue to do and doubling down on our efforts to so. We have a once-in-a-generation improve audit quality, is part of our opportunity to redefine the audit response. This report describes how product and its purpose and I for one we’re restoring trust in audit – and by am excited at what this means for extension – trust in capital markets. the UK. I’m proud of the progress we’ve made, particularly given the extra challenges the global pandemic has created. In areas like corporate governance, our firm has been a first mover. With the creation of our Audit Board, we’ve charged a group of experts with managing our audit business. © 2021 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 4 UK Transparency Report 2020 Creating confidence in capital markets Now, more than ever, the markets need confidence. And this is something high-quality audits can provide. We’re engaging with stakeholders to make sure that audit reports give investors the insights they need, as they deal with uncertainty. Change in the UK’s corporate We’re shaping the future of the sector continues at pace. The global audit profession pandemic is creating a new social Where we have made changes to contract between society and big our audit practice, these have often business: people want businesses been ahead of regulatory change. to be socially responsible and put We’ve made considerable progress Michelle Hinchliffe purpose above profit. The public’s on operational separation and as a Chair of UK Audit expectations are higher than ever firm, we support it. For example, before. And while all stakeholders we already have a separate Audit agree reform is necessary, any reform Board and plan to bring external Audit has to make sure the UK remains an Non-Executives on this Board soon. attractive location for corporations – particularly in a post-Brexit, post- We know, though, that for operational pandemic world. separation to have a significant impact on audit quality it needs to be Audits that are fit for purpose part of a package of other changes across the UK’s corporate reporting Against this backdrop, audit, and ecosystem. Timing is key and audit auditors, have an important role to reform alone will not achieve this. play in raising deserved confidence Government, regulators and others in business. In my role as Chair need to prioritise the actions they of Audit, one of my priorities has want to take, and think carefully about been to increase engagement with the order they take them in. stakeholders. We’re addressing their demands to expand the scope of It is an exciting time for our audit and speak regularly to regulators profession. If we get these reforms and investors, among others. I know right – and we are working closely that, by working together, we can with the Financial Reporting Council restore trust in our profession. to help shape the future of the profession – collectively, we will Recent reviews and inquiries into strengthen the UK’s corporate sector. audit propose options such as businesses producing resilience statements or reporting on internal controls, in what could become a UK version of Sarbanes-Oxley. We support these proposals and want them to go a step further, adding assurance. In doing so, this would give users even greater confidence in their contents. Similarly, we plan to offer assurance of Environmental, Social and Governance metrics to all the companies we audit. We know that audit could, and should, ‘do more’. © 2021 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 5 UK Transparency Report 2020 Creating a sustainable audit business We’re one year into a three-year strategy for our audit practice, built on the pillars of high audit quality, a sustainable business and rewarding careers. Audit is grappling with multiple once-in-a-generation challenges all at the same time. Through it all, we’re building a bright future for audit, founded on investment in people, culture and innovation. This year of turmoil has reminded Audit is increasingly an innovation and everyone how essential audit is to technology business. And innovation the whole financial system. Despite relies on diversity in our people. This Jon Holt unprecedented challenges in 2020, year, we’ve diversified our recruitment Head of Audit the investments in our transformation more than ever before, with a better programme enabled us to continue mix of graduates, apprentices and delivering high-quality audits whilst offshore roles. I am personally working remotely. sponsoring our Black Lives action plan to ensure that we make our Audit Giving auditors the skills, and the practice a place for every talented tools, they need auditor, regardless of their background or identity. This year we’ve consistently rolled out new technology and better We’re transparent about our ways of working. Our new Centres progress of Excellence are helping front-line auditors focus on what they do This year we released our Audit best. Our specialist teams, in areas Quality Scorecard – a window into like data analytics and climate risk, the holistic measures and metrics we are growing and are more deeply use to track the quality of our audits embedded in Audit. across the practice. Audit quality is improving, and you can read more We’ve got 150 audit teams using about the Scorecard on page 19. KPMG Clara workflow – the most modern audit platform and In the FRC’s 2019/20 Audit Quality methodology in the big 4 and our Review, we received no “significant biggest technology investment ever. improvements required” grades for We have year-round training for the second year running. But despite auditors, building on our annual KPMG all our investment and focus, we still Audit University. Culture and coaching have room for improvement. We will are key to delivering quality every not be satisfied until we consistently time, so we have a comprehensive achieve AQR scores that reflect the programme to strengthen our culture. progress we’re making. We know that having the right culture I’m proud of the 6,000 auditors at in place is crucial if we are to deliver KPMG. They’ve continued to deliver quality, every time. In internal training complex audits with high quality and coaching, we describe this as a despite the challenges of this year. ‘high challenge, high support’ culture; The strong culture of mutual support it describes what we expect of and commitment to challenge give auditors and what they can expect of me great confidence in the future each other.