76% of KPMG’s audits reviewed by the FRC were deemed to require no more than limited improvements, compared with 61% in 2017/18. Of the FTSE 350 audits reviewed this year, the FRC assessed 80% as achieving this standard compared with 50% in 2017/18.

While the results have shown an improvement from last year, this was from a low base an, in common with others, below the FRC target for FTSE 350 audits.

KPMG, said the FRC, still has more to do to reach a consistently acceptable standard and ensure that the improvement is sustainable.

Key individual review findings related principally to the need to:

  • Improve the quality of the audit of the valuation of financial instruments in financial services entities.
  • Strengthen the audit of loan loss provisions in financial services entities.
  • Improve the consideration and challenge of cash flow forecast assumptions in relation to the impairment of goodwill.
  • Improve the consideration and challenge of management’s estimation of provisions.

In response to significant concerns over audit quality, as set out in the FRC’s previous report, KPMG started to implement its Audit Quality Plan at the end of 2017. The FRC reviewed the plan in detail as part of this year’s inspection, saying: “We consider that the actions taken to date demonstrate the firm’s commitment to improving audit quality and we have seen improvements in a number of areas in which we identified key findings last year. However, these actions are part of a longer-term plan which needs to be sustained by the firm. While actions have been taken in relation to our key findings during 2018, we require the plan to focus more on improving the quality of financial services audits and the robust challenge of management going forward.”