This is the fastest annual growth rate in revenue for 10 years.
KPMG chairman and senior partner Bill Michael put the Big Four firm’s success down to the tough decisions that it has had to take recently and the hard work of its 16,000-strong staff.
“Since, taking on this role, together with my leadership team, I have refocused the business on our core strengths aligned to the firm’s public interest responsibilities,” he said.
“These actions have put us on the right trajectory. We are seeing growth right across our service lines, attracting talented people and winning major mandates. Our pipeline is strong and I am excited about the future”
Michael’s 635 partners will certainly be happier than last year. Their average remuneration has gone up to £601,000 after experiencing a fall in 2017 from £582,000 to £519,000.
Michael is better off too – his pay rose from £1.4m in 2017 (which he shared three months/nine months with his predecessor, Simon Collins) to £2.1m for the first full year of his tenure as chairman.
HMRC will also be happier – total tax take from the firm went up from £824m in 2017 to £885.8m for 2018.
Over the year, KPMG has taken advantage of a busy M&A market to boost revenue to the firm’s deal advisory practice by 14%.
The audit arm was also a strong performer, reporting an 8% rise in fee income. It has benefited from the regulatory changes to the audit market to win a number of prestigious audit clients, including BT, Experian, Royal Mail and Aggreko, and has just overtaken PwC to audit the most (28) FTSE 100 companies.
The firm said that regulatory change and trends in global politics – like Brexit and US tax reform – resulted in a 7% rise for tax, people services and legal, while the consulting arm grew by 5%.
To support the growth, KPMG took on 1,365 graduates and apprentices – 48% of them outside London. This is the highest number of trainees since 2011 and an 22% increase in student recruitment on 2017.
The firm also revealed that its gender pay gap (including both employee and partner pay) was 28% (median) and 42% (mean), while its ethnicity pay gap was 14% (median) and 36% (mean).
Reputationally, KPMG has faced a tough year as the Financial Reporting Council (FRC) has announced investigations into some of its audits – including Conviviality and Carillion. It has been fined millions of pounds for its audits of Quindell and Ted Baker and it is facing tribunals over its work for BNY Mellon and Silentnight.
In June, the FRC criticised the “unacceptable deterioration” in the quality of KPMG’s audit work in its annual report on the UK’s largest firms.
All this was set against the background of the implosion of sister practice, KPMG South Africa, which saw almost all its senior executive team sacked over their alleged relationship with the Gupta scandal.
In his statement in the firm’s transparency report, Michael addresses the issues head on. He says that all stakeholders, including companies, investors, pension funds regulators, government and taxpayers need to have confidence in what KPMG does as a firm.
“We must take responsibility for earning and sustaining the trust of all our stakeholders, listening to their concerns and working with them to address them.”
This is why the firm has decided to engage with the Competition and Markets Authority’s review of the way the audit profession operates and with Sir John Kingman’s review of the FRC.
He says that the firm has “taken decisive action” as well. In addition to its commitment to go ahead with a voluntary restriction on the provision of non-audit services to UK FTSE 350 audit clients, it is working towards the adoption of graduated findings in FTSE 350 audits for 31 December 2019 year-ends.
KPMG is also currently considering “the introduction of separate governance and performance management measures for the audit function, clear specialisation of auditors delivering audit for public interest entities; and individual and team incentives that are first and primarily focused on audit quality”.
“We have a duty to get it right,” he adds, “for our firm, our profession and wider society.”
As part of its programme to transform its approach to audit quality, the firm has set up a board committee dedicated to audit quality. This, says head of audit Michelle Hinchcliffe, has introduced new, improved governance at the highest level of the firm to “ensure that the public interest and expectations of regulators are fully embedded in our processes and reinforcing the position of audit quality on the board agenda”.
The firm has changed reporting lines for audit partners and employees “reinforcing the focus on audit quality as the overarching determinant of performance”, and it has rolled out a “substantial “programme of additional training for employees.
“Looking ahead,” Michael said, “I am clear that our profession is changing for the better.
“While I am certain that we will continue to face questions and challenges, I am committed to doing everything we can to deliver the highest quality work and lead the way as our profession moves forward.”