KPMG Chairman Calls For Audit 'Kitemark'

by Robert Lee, Tax-News.com, London

04 April 2008

John Griffith-Jones, co-Chairman of KPMG Europe LLP, has called for a re-think of the role of public company audits, and has proposed that society and the audit profession should work towards a new ‘kitemark’ standard for audit reports.

Griffith-Jones was delivering the Aileen Beattie Memorial Lecture ‘Towards An Even Better Profession’ to the Institute of Chartered Accountants of Scotland.

He suggested that the current ‘expectation gap’ about the role of auditing could be closed in the foreseeable future with a "new approach" and a "new contract".

He called for society and the audit profession to work towards a ‘kitemark’ standard of an audit report as being "about right".

“I am making the case for the acknowledgement of reality. I believe the kitemark that the profession and society should agree to work towards could be summarised in the vernacular as ‘these accounts are about right unless the management have deliberately conspired to falsify them."

He continued: “I am not about to argue for any reduction in the rigour with which an audit is carried out – I am not arguing for the commoditisation of an audit – and I am not proposing to take on liabilities I cannot meet.”

He argued that the kitemark would require individual auditors and firms to sign up to an increased level of responsibility.

“Society, for its part, would need to accept the standard of ‘about right’ as value for money and that - like it or not - there is not, as of now, sufficiently reliable audit technology to make it possible to remove the fraud caveat," he observed.

Griffith-Jones continued:

“Corporate scandals of recent years have taught us that we miss the point in spending a lot of time debating what 'about right' means. Because, in almost all the cases of major audit failure 'about right' does not come into it. The accounts turn out, with hindsight, to be 'spectacularly wrong'. No amount of words in the auditor’s opinion will change that fact.”

“Why would this be better than what we have now, assuming it could be achieved? Clearly, the biggest immediate advantage would be the recognition of the real status quo, thereby removing the expectation gap, but there would be other very significant advantages over time - a razor-sharp focus on the weak link in the chain, and an opportunity for the profession and its regulators to prioritise their efforts to work collaboratively on technology and process in this area, rather than on others of lesser importance."

"Last, but by no means least, there would be a much clearer line of responsibility and therefore of blame where unfortunately things go wrong.”

Griffith-Jones also suggested that pressure is growing on the UK audit profession from competition overseas, and that the challenge from emerging countries such as India would see more outsourcing and off-shoring of audit work.

“It may not be the whole audit goes off-shore, but large and significant chunks of audit work may well be transferred to lower cost, but by no means lower quality, professionals overseas. This has tremendous implications for the shape of our profession in the UK,” he argued, continuing:

“As structured as present, the staff pyramid of the big firms provides the country’s ‘accounting business school’ alongside the professional bodies. Strip away the lower end of the pyramid – and you strip away the supply source of the future.”

ICAS President Isobel Sharp responded to Griffith-Jones's suggestion by noting that:

“John's call for a 'kitemark' audit report reinforces what chartered accountants are all about - professional people providing an opinion. It is a principled approach, not the long consequence of ticking boxes. ICAS lobbied successfully to reintroduce a 'true and fair' test into corporate reporting. It would be good to see this stated boldly in auditors' reports.”

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