PracticeAuditInspectors flag up KPMG stock-take audit concerns

Inspectors flag up KPMG stock-take audit concerns

Stock-taking issues and signing off audits prior to their completion are flagged up by the Audit Inspection Unit in its review of KPMG's work

Inspectors have flagged up two audits where
KPMG is
required to make significant improvements to its procedures.

The Audit
Inspection
Unit, in its annual review of the
biggest firms’ work, flagged up two audits where significant improvements were
required out of its inspection of 15 KPMG engagements.

The AIU found deficiencies in audit evidence obtained by the firm, including
attendance at stock-takes where the value of stock had been identified as a
significant risk. On this audit there was sufficient evidence to support the
reliance on an independent valuation of properties and the amount of incentive
payments claimed from suppliers in the year.

On three occasions the auditor’s report was signed off prior to completion of
all necessary work, an area previously flagged up by the AIU previously. On one
of these instances changes made to the accounts after signing it off led to
significant changes to the balance sheet (after the publication of the
preliminary announcement) and significant changes to other audited and
non-audited disclosures in the accounts and annual report. “The firm should take
action to improve practice in this area as a priority,” said the AIU.

Other issues included not contacting banks or custodians to obtain audit
evidence supporting the existence of assets or liabilities – alternative
evidence was obtained and the main reason given for not contacting the banks was
stated to be the difficulty in obtaining reliable responses.

The AIU was “generally satisfied” with the justification of significant audit
judgments and the sufficiency and appropriateness of the audit evidence
obtained.

KPMG has taken positive steps in a number of areas in which the AIU has
previously flagged up areas for improvement, the unit stated.

The firm has placed considerable emphasis on its overall systems of quality
control and, in our view, has appropriate policies and procedures in pace for
its size and the nature of its client base in the relevant areas which are
subject to our review,” said the AIU.

Responding in a letter to the report, KPMG said it had already taken
appropriate action to address the specific matters raised.

“Whilst we may not always have exactly the same view as the AIU on the
significance of individual matters, we share the objective of avoiding ‘any
significant improvements required’ in assessments in future,” the firm said.

KPMG was pleased that no significant concerns were raised around the
valuation of assets held at fair value and the impairment of assets, plus the
assessment of going concern, which were areas of focus for the AIU.

Further reading:

FRC
delivers verdict on audit firms

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