At the end of a challenging year for the firm, KPMG UK has announced its strongest growth in a decade, with revenues up by 8% from £2.17bn to £2.34bn for the financial year ended 30 September 2018 and underlying profit increased by 18% year on year, to reach £356m.
Accountancy Daily reports the average remuneration for the firm’s 635 partners rose to £601,000, increasing from £519,000 in 2017. However, KPMG acknowledged it had been a tough year for the firm and was ‘disappointed’ that the Financial Reporting Council (FRC) had found its overall audit quality score decreased by four percentage points. KPMG also faced tough public and regulatory criticism over its auditing of collapsed outsourcer Carillion earlier in 2018.
The company has also set aside more in provisions for claims, which it defines as a ‘constructive obligation as a result of a past event’ under which ‘it is probable that an outflow of economic benefits will be required to settle the obligation’. For 30 September 2018, the provision for such claims amounts to £73m, compared to £56m in 2017. This change comes against a backdrop of increased scrutiny, as the company faces an FRC misconduct hearing over its audit of Silentnight and an admission of misconduct over reports prepared for BNY Mellon.
KPMG’s profit figure excludes the £106m raised from the disposal of 15 Canada Square. The firm said the sale and leaseback of the Canada Square office had contributed to its strong balance sheet, with the profits generated being used to de-risk the pension scheme and to create a significant investment fund for future growth.
KPMG hired 1,365 new graduates and apprentices, a record number since its 2011 intake and an increase of 22% in student recruitment on last year, with 48% of new roles based in the firm’s offices outside London.
A buoyant M&A market fuelled the firm’s deal advisory practice, which was the top performing business, growing by 14%. KPMG’s audit practice, which includes a 29% share of the FTSE 100 market, posted growth of 8%.
The firm said regulatory change and trends within global politics, such as Brexit and US tax reform, drove demand for advice, which saw its tax, people services and legal practice grow by 7%. Meanwhile, the firm’s consulting business achieved growth of 5%.
The financial report also discloses that KPMG will implement IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments for the year ending 30 September 2019. According to KPMG, ‘IFRS 15 requires revenue to be recognised only to the extent that it is highly probable that the revenue will not subsequently be reversed…Based on current fee arrangements in place, we consider that this earlier recognition in revenue would result in additional revenue of no more than 1.5% of the group’s and partnership’s revenue for the year ended 30 September 2018.
The implementation of IFRS 9 Financial Instruments will also be delayed to the same date, but KPMG does not believe that the implementation of IFRS 9 ‘will have a material impact on either classification, measurement and recognition of financial assets and liabilities of the group and partnership in existence at 30 September 2018’.
Bill Michael, chairman and senior partner at KPMG in the UK, who took home £2.1m in his first full year of tenure, said: ‘These results are the product of the tough decisions we have made and the hard work of our 16,000 people across the UK.
‘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. 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.’
Amidst the debate around the future of the profession, KPMG recently became the first UK firm to voluntarily stop providing ‘non-audit’ services to the FTSE 350 companies it audits and in the firm’s submission in response to the Competition and Markets Authority’s (CMA) market study, KPMG recommended the ban is rolled out across all audit firms in the UK.