The move follows the widespread interest that has been shown on both sides of the Atlantic in field tests the firm carried out earlier this year with a number of audit clients, including Rolls-Royce.
As part of its campaign to restore trust in audit in the wake of the financial crisis, the firm experimented with increasing the amount of useful information provided in the new long-form audit report, way beyond the minimum regulatory requirements.
As well as reporting on the risks and the auditors’ response to them, KPMG also included commentary from the individual senior audit partner. This included a discussion about qualitative matters with the aim of helping to add colour and depth, and to “emphasise areas of risk that concern management, audit committee and investors alike”.
The outcome was so successful that City Equity Research was moved to say, “KPMG’s report on Rolls-Royce should be regarded as best practice, in our view.”
According to KPMG head of audit Tony Cates, the firm’s innovative approach has become a talking point among investors and has featured as a “recurring theme” at a public meeting held by the Public Company Accounting Oversight Board on the future of US auditing.
“When we were approached by an audit committee chairman asking ‘Can I have a Rolls-Royce audit report?’, we knew that we needed to think about moving beyond a field test.”
The open invitation has the backing of the KPMG board, senior audit partners and UK chairman Simon Collins. He said, “It will enable us to work with more companies on increased transparency, shaping the future of audit and corporate reporting.
“There is certainly no requirement for client companies to take up our offer and, indeed, extended reporting may not be appropriate for all companies at this time.
“We hope, however, that management teams will debate the proposal with their boards, audit committees and, in particular, their key investors.
“These kinds of audit reports will contribute to greater transparency, insight and trust.”
To help audit clients decide whether or not to go ahead with the “enhanced” audit report, KPMG is offering to show audit clients what its reported “findings” would have looked like had it been engaged to do them during their last audit.
It points out, however, that the decision will need to be taken before the start of their next audit to ensure that “decisions are free from any question of bias and are about participating in the future of corporate and audit reporting”.