KPMG is challenging its listed audit clients to include broader qualitative commentary in their annual report by giving details of auditor findings, as part of a move to increase transparency and improve trust in the audit process
The firm says its proposals extend beyond the Financial Reporting Council’s (FRC) requirements for long-form audit reports and follow KPMG’s field-testing of the approach with three audits, including Rolls-Royce Holdings, earlier this year.
In a report, Sharing audit insights – our approach to reporting our findings, the firm is asking all listed client companies to take this approach in their long-form audit reports. Introduced by the FRC in 2013, the objective of more detailed commentary is to set out details of the specific matters the auditor saw as the major risks at an individual company and what work the auditor had done on those matters.
Tony Cates, UK head of audit at KPMG, said: ‘The FRC’s reforms have been a big step forward in increasing transparency. But we took the FRC’s new requirements and went further. In three pilot audit reports we included commentary from the individual senior audit partner. This discussed qualitative matters in order to help give colour, depth, and emphasise areas of risk that concern management, audit committee and investors alike.’
Cates said the decision to offer such audit reports more widely was driven by the welcome given to the three pilot audits from shareholders, analysts and investors. A KPMG survey on trust and the auditors in July 2014 found that 80% of respondents agreed that audit reports should include auditor findings.
Clients are being asked to sign up to this long-form apporach to audit reports in advance to ensure that decisions are free from any question of bias.
Simon Collins, UK chairman of KPMG, said: ‘There is certainly no requirement for client companies to take up our offer and, indeed, extended reporting may not be appropriate for all companies at this time. We hope, however, that management teams will debate the proposal with their boards, audit committees and, in particular, their key investors.
'These kinds of audit reports will contribute to greater transparency, insight and trust.’
The KPMG report, Sharing our audit insights, is available here http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Audit/sharing-audit-insights.pdf
