LONDON (Reuters) - Britain’s accounting watchdog has opened a full review of standards and culture at KPMG, its first such intervention, after the audit firm’s role in collapsed construction company Carillion was criticized by lawmakers.
In January, the Financial Reporting Council (FRC) said it had opened a second investigation specifically into how KPMG audited the books of Carillion.
“Following that referral and discussions with KPMG, the FRC, supported by A&O Consulting, has commenced an assessment of the governance, controls and culture within KPMG’s audit practice,” the FRC said on Tuesday.
Last June, the FRC said KPMG had shown an “unacceptable deterioration” in how it audited top British firms and was first to undergo special supervision.
KPMG said it was now 18 months into an audit quality transformation program, and it was essential the regulator had confidence the “right outcomes” were being delivered.
“With this in mind, we welcome that the FRC has commenced an assessment of our audit practice. The FRC is being supported by Allen & Overy Consulting, led by Sally Dewar,” KPMG said.
“We see this as a valuable opportunity for the FRC to test our progress and to confirm next steps for our audit transformation.”
Such “rigor and challenge” will become increasingly common in the sector and is a change for the better, it added.
The FRC said it was the first time it had commissioned an outside body to conduct an independent review of an auditor. It did not say when it would publish the findings.
Separately on Tuesday, British lawmakers called for KPMG, EY, PwC and Deloitte - known collectively as the Big Four accounting firms - to be broken up to improve standards and transparency in book-keeping after audit failures at Carillion and retailer BHS.
Reporting by Huw Jones; Editing by Mark Potter