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Delivering audit quality on the ground

In this section, we set out the ways in which member firms implement global policies and procedures to ensure quality and integrity at a local level.

In this section, we set out the ways in which member firms implement global policies...

Phase two

Taking responsibility for audit quality at member firm level

While KPMG International creates the global framework and policies for audit quality, member firm leadership is responsible for the delivery of that quality and for local quality control.

Each firm is responsible for:

  • establishing and maintaining a system of quality control; and
  • designing, implementing and testing the operating effectiveness of quality controls.

Within each member firm, there is a Head of Audit, who has primary responsibility for audit quality and is assisted by the member firm Risk Management Partner (RMP) in maintaining a system of quality control.

Partner assignments

All KPMG member firms are required to have procedures in place to assign both the most suitable engagement partners and other professionals to an audit engagement on the basis of their skill sets, relevant professional and industry experience, and the nature of the engagement.

Heads of Audit within member firms are responsible for the partner assignment process, which includes consideration of key factors relating to competence, workload and experience, including quality and compliance incidents.

Partners are required to have appropriate experience, training and capacity based on an annual partner portfolio review taking into account the size, complexity and risk profile of   the engagement, and the type of support and specialist input to be provided (i.e. the engagement team composition and specialist involvement).

Engagement teams

Audit engagement partners are required to be satisfied that their engagement teams have appropriate competencies, capabilities and capacity, and to determine whether they require the use of specialists to perform the audit engagement in accordance with professional standards, KPMG’s audit methodology, and applicable legal and regulatory requirements.

If the right resource is not available within the member firm, access is provided to a network of highly skilled KPMG professionals in other member firms.

Embedding ongoing mentoring, supervision and review

To invest in building the skills and capabilities of KPMG professionals, member firms promote a continuous learning environment and support a coaching culture.

Ongoing mentoring, coaching and supervision during an audit involves:

  • engagement partner participation in planning discussions
  • tracking the progress of the audit engagement
  • considering the competence and capabilities of the individual members of the engagement team, including whether they have sufficient time to carry out their work, whether they understand their instructions and whether the work is being carried out in accordance with the planned approach to the engagement
  • helping engagement team members address any significant matters that arise during the audit and modifying the planned approach appropriately
  • identifying matters for consultation with more experienced team members during the engagement.

A key part of effective mentoring and supervision is timely review of the work performed so that significant matters are promptly identified, discussed and addressed.

 Engagement quality control (EQC) reviews

The EQC is an important part of KPMG’s framework for quality. An EQC reviewer is required to be appointed by member firms for audits, including any related review(s) of interim financial information, of all listed entities, non-listed entities with a high public profile, engagements that require an EQC review under applicable laws or regulations, and other engagements as designated by the Risk Management Partner or country Head of Audit.

EQC reviewers are independent of the engagement team and have the appropriate experience and knowledge to perform an objective review of the more critical decisions and judgments made by the engagement team and the appropriateness of the financial statements.

The audit is completed only when the EQC reviewer is satisfied that all significant questions raised have been resolved, though the engagement partner is ultimately responsible for the resolution of accounting and auditing matters.

KPMG is continually seeking to strengthen and improve the role that the EQC review plays in member firm audits and has taken a number of actions to reinforce this, including issuing leading practices guidance, incorporating specific review requirements into our audit workflow, and developing policies relating to recognition, nomination and development of EQC reviewers.

Training and experience requirements for IFRS and US GAAP engagements

Specific requirements apply for partners, managers and EQC reviewers working on IFRS engagements in countries where IFRS is not the predominant financial reporting framework.

Similar policies apply for engagements performed by KPMG firms outside of the US to report on financial statements or financial information prepared in accordance with US GAAP and/or audited in accordance with US auditing standards, including reporting on the effectiveness of the entity’s internal control over financial reporting (ICOFR).

These require that, at a minimum, all partners, managers, engagement in-charges and EQC reviewers assigned to the engagement have completed relevant training and that the engagement team, collectively, has sufficient experience, including regarding the financial reporting framework that is not otherwise applicable in their jurisdiction, to perform the engagement or has implemented appropriate safeguards to address any shortfalls.

Access to specialist networks

Member firm engagement teams have access to a network of KPMG specialists — either within their firm or in other KPMG firms. These specialists receive the training they need to ensure they have the competencies, capabilities and objectivity to appropriately fulfill their role. They also receive a global annual update on global quality performance issues.

The need for specialists to be assigned to an audit engagement in areas such as information technology, tax, treasury, actuarial, forensic and valuations is considered as part of the audit engagement acceptance and continuance process, as well as during the conduct of the engagement.

Member firm professional practice resource

Member firms provide consultation support on auditing and technical accounting matters to their audit professionals through professional practice resources (referred to as Department of Professional Practice or DPP). This resource also assists engagement teams where there are differences of opinion either within teams or with the engagement quality control reviewer. Unresolved differences are required to be escalated to senior partners for final resolution. KPMG’s International Standards Group is also available for consultation when required.

Encouraging a culture of consultation

KPMG encourages a strong culture of consultation that supports engagement teams throughout their decision-making processes and is a fundamental contributor to audit quality. KPMG promotes a culture in which consultation is recognized as a strength, and that encourages partners and staff to consult on difficult or contentious matters.

To help with this, firms are required to have established protocols for consultation and documentation of significant accounting and auditing matters, including procedures to facilitate resolution of differences of opinion on engagement issues. In addition, the Global Quality & Risk Management Manual includes mandatory consultation requirements on certain matters.

Recognizing the importance of communication

Honest and candid communication with clients, including management and audit committees, is a key aspect of our reporting and quality service delivery. As described later in this report (see ‘Innovating and evolving our audit approach’ section), our smart audit platform, KPMG Clara, includes a client collaboration portal, allowing clients real-time monitoring of the status of the audit as well as seamless communication with the audit engagement team.

Communications with those charged with governance

We stress the importance of keeping clients informed of issues arising throughout the audit and the need to listen to and understand their views. KPMG firms and professionals achieve this through a combination of reports and presentations, attendance at audit committee or board meetings, and, when appropriate, ongoing discussions with management and members of the audit committee.

The role of audit committees is key in supporting better quality auditing by managing the relationship between company and auditor and challenging what auditors do and how they do it.

Audit Committee Institute (ACI)

In recognition of the demanding and important role that audit committees play in driving audit quality and the challenges that they face in meeting their responsibilities, KPMG’s Audit Committee Institute (ACI) aims to help audit committee members enhance their commitment and ability to implement effective audit committee processes. KPMG member firms provide audit committee and board members with practical insights, resources and peer-exchange opportunities focused on strengthening oversight of financial reporting and audit quality. The ACI’s offerings cover the array of challenges facing boards and businesses today — from risk management and emerging technologies to strategy and global compliance.

The ACI operates in over 40 countries around the globe and provides audit committee members with authoritative guidance on matters of interest to audit committees as well as the opportunity to network with their peers during an extensive program of technical updates and awareness seminars.

Further details and insights on the ACI are available here.

IFRS Institute

KPMG’s Global IFRS Institute provides information and resources to help board and audit committee members, executives, management, stakeholders and government representatives gain insight and access thought leadership about the evolving global financial reporting framework.