KPMG Slated to Post Best Audit Inspection Report in 15 Years

KPMG LLP may have finally cracked the code on delivering better audits to investors: Giving its staff more time to do their work and ensure they increasingly have weekends off during the busy corporate filing season.

Those steps have led the US accounting firm to expect its best annual inspection results in 15 years with a deficiency rate of 20%.

The Public Company Accounting Oversight Board, which regulates US audit firms, hasn’t released its 2024 annual assessment yet. The firm touted the improved inspection findings in an annual report on its audit practice released on Thursday.

“It turned out that what our people needed was just a little bit more time,” Christian Peo,the firm’s national managing partner for audit quality and professional practice, said in an interview. “If you’re in hour 63 of a week in February, you might not be at your best.”

KPMG has rolled out a series of reforms since 2018 meant to turn around a firm that had struggled to meet basic standards and launched a scheme to falsely inflate its results that resulted in criminal charges. To fix those problems and improve its auditing, the firm made personnel changes and introduced a new audit platform along with artificial intelligence tools.

Three years ago, the firm began to tackle more audit tasks earlier in the year to ease the crunch during the harried rush of corporate filing season that typically runs from January to March. In what Peo called “a huge cultural change,” now more than half of its audit work is handled by late December, a reversal from past practices that left the bulk of the audit to be squeezed into two months.

Adjusting the pace of the audit also freed up time to review teams’ work before they could issue their annual assessment on clients’ financial statements. The firm spot checks the work of each audit for its portfolio of US-listed public companies—an added layer of scrutiny beyond what’s required by US audit standards, Peo said.

It’s also given staff some needed time off during the filing season crush. The percentage of staff with weekends off during busy season doubled from 2020 to 2023 to 40%, according to the firm.

“We don’t have to scramble,” Peo said. “There is some capacity in the system for us to be able to really think through not only is this the right accounting, but do we have all the right evidence.”

EY Predicts Improvement

KPMG’s competitors Deloitte, Ernst & Young, and PwC each released their own reports with updates about their audit practices late last year. PwC, also known as PricewaterhouseCoopers, and Deloitte didn’t offer any early details on how they fared in their 2024 inspections.

EY in its November report said that, like KPMG, it’s on an upswing, forecasting that its deficiency rate will drop for the second year in a row. To boost its audit quality, the firm has increased mid-audit internal checks and is working to better manage the size of its client portfolio among other steps.

Those latest inspections, conducted by the Public Company Accounting Oversight Board, looked at fiscal year 2023 audits. The board has said that after several years of rising violation rates, inspectors found signs of improvements in its most recent round of inspections that vet how auditors complied with core requirements.

The board’s latest review period also spanned audits KPMG performed for three regional banks that collapsed in 2023 after the firm issued clean audit opinions for the lenders. The firm declined to comment about any specific audits.

“Auditing is never a static environment and so we’re always looking to improve and be better,” Peo said. “That’s always the case no matter what year we’re coming off of.”