Quality audits come first, claims KPMG

Audit firms moved quickly this week to refute claims by one of the country’s largest pension funds that moves to limit liability would reduce the incentive to conduct a thorough audit.

KPMG described the claims as ‘an isolated example of criticism’ of its decision to incorporate its audit practice. Senior partner Colin Sharman said the standard of its work would remain unaffected by the move away from joint and several liability partnership.

British Steel Pension Fund took the unusual step last week of announcing its intention to vote against KPMG performing an audit where it was an investor. Stewart Colley, the fund’s investment manager, said: ‘Incorporation is a step in the wrong direction. The company should be increasing the quality of its audits rather than limiting liability from investors and shareholders.’

He added that trustees would take the same stance against other firms attempting to limit the liability of all their partners from litigation.

KPMG said it was surprised by the criticism, the first by a major investor, but argued it would not derail the move to incorporation. The firm has so far allayed the fears of clients and City investors that the change would alter its partnership culture and depress standards. ‘No one is suggesting that auditors should not accept the rightful proportion of liability,’ added Sharman, ‘but we don’t want to be the insurers of the assets.’

Ernst & Young and Price Waterhouse, both in line to adopt LLP status in Jersey, argued their move would not affect clients. Marek Grabowski, auditing technical partner at Price Waterhouse, said: ‘There are still very substantial incentives for the audit entity to carry out thorough audits.’ Nick Land at Ernst & Young added that it was naive for the pension fund to believe limited partnerships prevented clients from gaining redress.