Investing to become the Clear Choice UK Annual Report 2015 (including the Transparency Report) December 2015 KPMG.com/uk Highlights Strategic report Profit before tax and Revenue members’ profit shares £1,958m £383m (2014: £1,909m) (2014: £414m) +2.6% -7% 2013 2014 2015 2013 2014 2015 Average partner Total tax payable remuneration to HMRC £623k £786m (2014: £715K) (2014: £711m) -13% +11% 2013 2014 2015 2013 2014 2015 Contribution Our people UK employees KPMG LLP Annual Report 2015 Annual Report KPMG LLP 11,652 Audit Advisory Partners Tax 617 Community support Organisations supported Audit Tax Advisory Contribution Contribution Contribution £197m £151m £308m (2014: £181m) (2014: £129m) (2014: £324m) 1,049 +9% +17% –5% (2014: 878) © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Strategic report Contents Strategic report 4 Chairman’s statement 10 Strategy 12 Our business model 16 Financial overview 18 Audit 22 Solutions 28 International Markets and Government 32 National Markets 36 People and resources 40 Corporate Responsibility 46 Our taxes paid and collected 47 Independent limited assurance report Governance 52 Our structure and governance 54 LLP governance 58 Activities of the Audit & Risk Committee in the year 59 Activities of the Nomination & Remuneration Committee in the year KPMG in the UK is one of 60 Activities of the Ethics Committee in the year 61 Quality and risk management the largest member firms 2015 Annual Report KPMG LLP 61 Risk, potential impact and mitigations of KPMG’s global network 63 Audit quality indicators 66 Statement by the Board of KPMG LLP providing Audit, Tax and on effectiveness of internal controls and independence Advisory services. In the 67 Report from the Chair of the KPMG UK we have 617 Partners LLP Public Interest Committee Financials and 11,652 outstanding 72 Report to the members professionals working together 74 Independent auditor’s report to the members of KPMG LLP to deliver value to our clients 78 Consolidated income statement 78 Consolidated statement of across our 22 offices. comprehensive income 79 Statements of financial position 80 Statements of changes in equity 81 Statements of cash flows 82 Notes Appendices 122 1 Structure and governance This Annual Report incorporates our Transparency 125 2 System of quality control Report by integrating herein the information 139 3 Public interest entities listing required to be disclosed in accordance with the 143 4 Disclosure and Audit Firm Statutory Auditors (Transparency) Instrument Governance Code requirements 2008 and the Audit Firm Governance Code. 148 5 KPMG’s Values Appendix 4 details where these disclosures in relation to both KPMG LLP and KPMG Audit Plc may be found in this Annual Report. 1 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Strategic report KPMG LLP Annual Report 2015 Annual Report KPMG LLP 2 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Strategic report Strategic 2015 Annual Report KPMG LLP report 4 Chairman’s statement 10 Strategy 12 Our business model 16 Financial overview 18 Audit 22 Solutions 28 International Markets and Government 32 National Markets 36 People and resources 40 Corporate responsibility 46 Our taxes paid and collected 47 Independent limited assurance report 1 3 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Chairman’s Strategic report statement “ 2015 was the year we put the substantial investment programme we announced in 2014 into action and we KPMG LLP Annual Report 2015 Annual Report KPMG LLP have seen some real progress.” Simon Collins Chairman and Senior Partner KPMG in the UK 4 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Strategic report In 2013, we set out on a programme of deep But we need to be a responsible business which is transformation with a three-year ‘grip, build, grow’ good for society too, brave enough – as we invariably strategy to reposition the business in the markets are – to speak up and act on the issues that will make a that we serve. Our annual results for 2015 show the real difference to the UK economy. We can take action progress we are making towards our ambition of on issues immediately pertinent to our business, such marking out KPMG in the UK as the clear choice for as taking a lead on the evolution of tax and audit, as our clients and for the talented people we employ. well as bigger society issues such as the Living Wage and affordable housing. We are proud to do both. In year one, the focus was on controlling costs and restoring profitability. In year two, we rebooted the Firm at our One Firm event at the O2, which Audit reinvigorated the values at the core of our business The audit retender market was alive with activity in and boosted engagement with our partners and 2015 and I’m delighted to say our Audit practice has colleagues. We also announced a bold programme of not only coped with a disrupted market but thrived investment, including an alliance with the McLaren at taking the opportunity to make our reports more Technology Group and a new deal with our staff. valuable to investors and work with new clients. 2015 has seen us begin the process of bedding down Part of that is down to the Financial Reporting our investments – from developing audits which can Council’s ‘comply or explain’ governance regime. ‘see round corners’ to giving our staff their birthdays It has driven a relatively smooth transition to the off. Within 12 months, we have seen these significant new system and it’s good to see best practice investments start to bear fruit. I am proud of what increasingly emerging both in terms of audit tendering we’ve achieved so far. and handover. But it’s important to be clear that the journey has not There are other benefits too. For instance, the new been entirely smooth. Growth did not come as quickly regime has forced us to examine our own practices in 2015 as we expected and our revenues for the year and procedures. We’ve had to articulate clearly the role – at £1.96 billion (£1.91 billion in 2014) – were below we play in keeping companies safe and in maintaining what we wanted to achieve. Profit, at £383 million, public trust in the capital markets. was also below target. The new regime has also boosted the quality of audit Above all, that reflects our determination to continue committees. They are now doing a much better investing heavily in acquisitions, alliances, technology, job on behalf of shareholders and they are working talent and our network of offices to make sure we harder to engage with auditors. It keeps us on our 2015 Annual Report KPMG LLP have the right resources and scale to meet our clients’ toes, forcing us to be both increasingly relevant and most pressing needs. In essence, the build phase of increasingly challenging. Ultimately, that is very good our plan continued into 2015. Nevertheless, we have for corporate governance. held our nerve and began to see a distinct change as the year ended. Growth picked up in the last quarter We can feel proud about our own role here too. of the year. It’s early days, of course, but we are Because we prepared well for the new regime, it confident that the growth phase of our three-year plan has been much less disruptive than it might have has now begun. been. That achievement is reflected in our results, where we reported a 6.1% growth in audit net sales. Just as importantly, we have gone into FY 2016 We’ve maintained our win rate successfully with with a clear sense of who and what we are – first some important new mandates, notably Barclays, commercially, as a market-focused, issues-led British American Tobacco and Experian, and we audit business with a much sharper focus on our clients’ more listed companies than any other firm. We also needs; and secondly, and crucially, in terms of achieved an important strategic goal for the year – understanding the powerful contribution we can make boosting our audit market share among FTSE 100 to society at large. companies to 24%. For me the balance is very important. There are many elements to building a truly sustainable business. We have to be successful, proud, prosperous and aggressive as a business, with an unblinking focus on winning in the market by finding new and better ways to serve our clients. 5 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Chairman’s statement continued Strategic report However, what’s impressed me most is the way the During the year we extended our own thinking on Firm as a whole swings behind the effort to secure responsible corporate tax into the public arena. new audit mandates, losing all sense of working in We have been pleased to sponsor and support silos.