This will include separate performance management and governance of the firm’s audit practice as well as a new audit executive committee that will have executive responsibility for the audit business’s performance management, risk management and controls.
Jon Holt, who will become the firm’s new head of audit, will lead the committee. He will replace Michelle Hinchliffe, who is set to join the firm’s UK board in the newly created role of chair of audit as well as deputy chair of the board audit oversight committee.
Last year in its annual review of audit quality across the big firms the Financial Reporting Council (FRC) singled out KPMG for an “unacceptable deterioration in quality”.
The review found that the overall decline in quality of KPMG’s audits was “unacceptable and reflects badly on the action taken by the previous leadership, not just on the performance of front line teams.” KPMG is the firm at the centre of the Carillion controversy and has been auditor of the collapsed construction company since 1999.
The firm was singled out in a report by a joint committee of MPs for failing to question Carillion’s financial judgements and information and for being “complicit” in the company’s “questionable” accounting practices. It is currently under investigation by the FRC for its work on Carillion.
Announcing the changes today, KPMG said this is not the start of the audit separation proposed by the recent Competition and Markets Authority and Department for Business Energy & Industrial Strategy Select Committee reviews, but that the overhaul “will deliver on many of the recommendations”.
“We’re serious about making changes to restore trust in audit. We understand concerns that the profession’s operating models have become too opaque and we are taking action to tackle these,” said Bill Michael, chairman and senior partner of KPMG.
“The sole aim and focus of our chair of audit, our new audit executive and our Audit Oversight Committee is to drive audit quality, via strong leadership, good governance, rigorous controls, independent decision-making and separate performance management from the rest of the firm.”
The firm’s current UK executive committee will be reshaped to form a core executive leadership team, consisting of an executive board and a clients and markets executive.
Tim Jones, current global head of management consulting, will join the UK firm’s leadership team as COO. Karim Haji will succeed Holt as head of financial services.
Philip Davidson, KPMG UK’s managing partner will retire from the UK partnership in September. Scott Parker will take on the new role of head of clients and markets while Chris Hearld, the firm’s north region chairman, will be appointed to the role of head of regions.
Chief risk officer Mary O’Connor will chair the firm’s risk executive committee.
All changes are expected to come into effect on 1 June.