Setting the quality agenda Setting the quality agenda

Quality is our priority

Welcome to the 2018 KPMG International Transparency Report (PDF 2.0 MB), covering the financial year to 30 September 2018.

This report is all about quality: how we drive quality, the initiatives we are pursuing to continuously improve it and our systems of quality control.

We have an unshakeable commitment to quality and know that our standards must be of the very highest level in order to build public trust. Responsibility for quality starts at the top and means reinforcing accountability through the complete chain of command in all our teams so that every action helps us meet our rigorous quality objectives.

In 2018, we undertook a thorough examination of our protocols and practices to ensure we are bringing the utmost consistency to the quality of our audits, to the experience of our clients, and in the behaviors and values we demonstrate in the communities in which we live and work. As a result of that examination we have recently made changes to our governance to drive greater accountability and consistency in how we conduct our audits to achieve our quality standards, and to take every opportunity to reinforce our core value to 'act with integrity'.

To achieve the level of consistency we have set for ourselves, the Global Board has made a number of significant changes, including appointing a Global Head of Audit Quality reporting to a new Global Audit Quality Committee of the Global Board, led by Alison Kitchen, Chair of KPMG Australia. This committee will take the lead in monitoring and driving improvements to audit quality across the global KPMG organization.

In addition, as we set out later in these pages, we are updating our audit methodology and embedding it in a new audit workflow system, hosted in our recently launched 'smart' audit platform, KPMG Clara.

Our commitment to quality is underpinned by our values, which form the foundation of our culture and set the tone at the top. They also form the foundation of our approach to audit and shape how we work together, developing and supporting our people to be the best they can be.

We have a strong vision for the future at KPMG and an exciting journey ahead of us. Our commitment to quality is fundamental to our journey, and is the overriding priority both for me personally and for KPMG.

Bill Thomas
Chairman

KPMG International

Audit quality is fundamental to maintaining public trust and is the key measure on which our professional reputation stands.

We define 'audit quality' as being the outcome when:

• Audits are executed consistently, in line with the requirements and intent of applicable professional standards, within a strong system of quality controls.
• All of our related activities are undertaken in an environment of the utmost level of objectivity, independence, ethics and integrity.

Audit is the cornerstone of our business and the basis on which KPMG was founded. That is why audit quality is so important to us: our strategy begins with a focus on quality and further guides us to continuously improve quality and consistency through innovation. Our goal is to be the best, we will never be satisfied — it’s our duty to the public and the capital markets.

As audit professionals, we understand we have a special responsibility to the public. We know that continuous quality improvement is fundamental to restoring the public’s trust in the profession, and to meeting the expectations of investors, regulators, the organizations we audit, our people, the capital markets and the communities we live in.

In addition to improving our methodology and workflow, we are leveraging technology like never before. We are making significant investments in technology today to bring greater consistency across all of our audits. In 2017 we introduced a smart audit platform, KPMG Clara, and in 2018 we continued to scale and enhance the platform which enables us to incorporate new technologies as they emerge and mature. As artificial intelligence, predictive analytics, machine learning and cognitive technologies develop, KPMG Clara will be updated to incorporate technological advancements as part of the workflow, not as a separate tool. And with real-time communication it is transforming the experience for our clients and people through greater transparency into the audit process. You can read about these developments in more detail in the Innovating and evolving our audit processes' section of this report.

We are committed to advancing the digitization of the audit to empower our people to deliver the highest quality audit. At the same time, our values cannot and must not change. Accountability at the top, setting the tone for the global organization, and embedding a culture of ethics, integrity and purpose are as critical to our success as they have ever been.

Having a committed and determined global leadership that takes responsibility for driving quality is key to fulfilling our responsibilities to our stakeholders.

Bill O'Mara
Global Head of Audit

KPMG International

Tone at the top, leadership, and a clear set of values and conduct are essential to set the framework for quality. However, these must be backed up by a system of quality control that ensures our performance meets the highest professional standards.

To help all audit professionals concentrate on the fundamental skills and behaviors required to deliver a quality audit, KPMG has developed the Audit Quality Framework, based on International Standards on Quality Control (ISQC 1), issued by the International Auditing and Assurance Standards Board (IAASB), which applies to professional services firms that perform audits of financial statements. KPMG's framework introduces a common language that is used by all KPMG member firms to describe what they believe drives audit quality and to highlight how each of their audit professionals contributes to the delivery of audit quality.

'Tone at the top' sits at the core of the Audit Quality Framework's seven drivers of audit quality and helps encourage the right behaviors across the entire KPMG network. All of the other drivers create a virtuous circle because each driver is intended to reinforce the others. While this Transparency Report (PDF 2.0 MB) summarizes KPMG's approach to audit quality, it may also be useful for stakeholders interested in member firms' Tax and Advisory services, as many KPMG quality control procedures and processes are cross-functional and apply equally to all services offered.

As a global organization, we recognize that strong and clear leadership from the center is needed, to set the tone from the top and provide the blueprint across the network.

Our global leadership, working with regional and member firm leaderships, plays a critical role in establishing our commitment to quality and the highest standards of professional excellence. A culture based on quality, integrity and ethics is essential in an organization that carries out audits and other services on which stakeholders and investors rely.

KPMG's leadership drives an awareness that everyone across the network who is involved in performing an audit, or any client engagement across tax and advisory, has a responsibility and a part to play.

This is one of the factors that connects everyone at KPMG. It is embedded by starting at the top of the organization.

Our commitment to integrity and quality is enshrined in the KPMG values that lie at the heart of the way we do things. They define our diverse and inclusive culture and our commitment to the appropriate personal and professional conduct. Our values emphasize that, above all, we act with integrity, uphold the highest professional standards and provide sound advice while rigorously maintaining our independence and complying with laws, regulations and professional standards. We communicate our values clearly to our people and embed them into member firms' people processes — induction, performance development and reward.

We strive to live the values, acting as role models and promoting ethical behavior. We will not hesitate to take action where we find behavior that is incompatible with them.

Building on our values is the KPMG Global Code of Conduct, which defines who we are and how we act. All member firms and their partners and staff are expected to act in line with the Code of Conduct.

Everyone at KPMG is required to take regular training covering the Code and to confirm their compliance with it.

Individuals are encouraged to speak up when they see something that makes them uncomfortable or that is inconsistent with our values. Moreover, everyone at KPMG is responsible for reporting — and is required to report — any activity that could potentially be illegal or in violation of our values, KPMG policies, applicable laws, regulations or professional standards.

To safeguard this, each member firm is required to have procedures and established channels of communication so that anyone working there can report ethical and quality issues. No member firm or KPMG partner or employee may in any way retaliate against individuals who 'raise their hand' and speak up in good faith.

In addition, the KPMG International hotline is a mechanism for KPMG partners, employees, clients and other external parties to confidentially report concerns they have relating to certain areas of activity by KPMG International itself, KPMG member firms, or the senior leadership or employees of a KPMG member firm.

Our global leadership plays a critical role in setting the quality agenda for the KPMG network. A number of global steering groups support this and drive the execution of the quality strategy. Each of these global groups has its specific areas of focus, and they work closely with one another on quality matters, along with regional and member firm leadership, to:

• establish and communicate appropriate audit, quality and risk management policies
• enable effective and efficient processes to promote audit quality
• proactively identify and mitigate critical risks to the network
• drive strategy implementation in member firms' audit functions, including standards of audit quality
• consider audit quality issues, including those arising from quality performance and regulatory reviews, and focus on best practices that reduce audit quality findings.

The overall governance structure of KPMG International and further detail on global leadership groups is provided in the 'Governance and leadership' section of this report.