Big Four firm KPMG has been publicly rapped by the accountancy watchdog over its appraisal process for the second year in a row. In a report on the firm published today, the Financial Reporting Council's Audit Inspection Unit criticised KPMG for allowing audit quality goals to be deselected from the appraisal template for audit staff without always being substituted with 'appropriate, alternative quality objectives'. The report added: 'We noted in our review of some appraisal forms that the results of AIU reviews had been reflected in an unduly positive manner with insufficient emphasis on areas where a need for improvement had been identified.' The AIU also rapped the firm over the appraisals of partners and directors based outside the audit function who are allowed to sign audit opinions and are expected to adhere to appraisal procedures followed within audit. 'As a result of our findings in this area last year, we reviewed the appraisal forms of half the 16 partners based outside the audit function who are authorised to sign audit opinions. We found that there was insufficient input from audit in their performance appraisals and either little or no evidence of input from their appraisers, who were partners based outside audit with no audit responsibilities,' the report said. In its 2008 report on KPMG, the AIU had highlighted the instance of one partner within a non-audit function whose appraisal objectives 'did not refer to audit quality, but concentrated instead on generating advisory fees from clients including one of the partner's audit clients'. The AIU also brought KPMG to task over the length of time senior staff associate with audits, citing 'a further instance this year where the independence threats and safeguards required in relation to an extended period of service had not been properly considered or assessed'. 'In our view some improvements to the firm's rotation policy and procedures are required,' said the report. There was also some criticism in the report over KPMG's evidence in support of audit judgments and communication with audit committees as well as audit finalisation and going concern procedures. But overall the AIU 'found that the commitment to quality generally and high quality audits in particular are prominent features of the firm's strategy'. In its letter of response to the report, KPMG sought to play down the criticism, saying: 'The FRC's overall aim is to promote confidence in corporate reporting and governance. We fully accept such confidence needs to be well founded, but we would question whether starting to include in the report certain very minor single instances is commensurate with that objective. Such blemishes should not be allowed to taint the profession merely because there are insufficient comments of substance to be made.'