We understand that how an audit is conducted and communicated is as important as the final results. Effective and efficient audits are dependent upon applying clear and consistent standards and tools, providing access to the right knowledge and skills, encouraging a culture of consultation with innovation and technology empowering us throughout.
Consistent application of audit standards across the global network is driven through centrally managed groups of global professionals. Our audit methodology and tools, developed and maintained by our GSC are:
- globally consistent and fully compliant with International Standards on Auditing (ISAs)
- designed to be effective in all types of risk environments and economic circumstances
- made available to and required to be used by all KPMG audit professionals where necessary for compliance
- applied even where local auditing standards are less demanding than the ISAs.
The ISG interprets international audit and accounting standards and facilitates consistent application by issuing practical guidance. ISG communicates developments and consequent changes in guidance or requirements to member firms’ DPP that support member firm engagement teams. The Global Topic Teams act as a central contact point for technical assistance to ensure consistent application and reporting practices.
Developments from the International Audit and Assurance Standards Board (IAASB) and/or International Accounting Standards Board (IASB) are tracked through the ISA and global IFRS Panels of seasoned industry and technical professionals and contribute, when appropriate, to consultations from standard setters.
The KPMG Audit process
The KPMG audit workflow is enabled through eAudIT, an activity based workflow and electronic audit file. eAudIT integrates KPMG’s audit methodology, guidance and industry knowledge, and the tools needed to manage our audits consistently from beginning to end. Our high quality audit process includes the following:
- timely partner and manager involvement throughout the engagement
- access to the right knowledge including involvement of specialists, accreditation and relevant industry expertise
- critical assessment of all audit evidence obtained during the audit, exercising appropriate professional judgment
- ongoing mentoring, supervision and review of the engagement team
- managing and documenting the audit, primarily through KPMG Audit methodology and eAudit.
Further detailed information on the KPMG Audit process can be found in the Supplementary Report.
Specific requirements apply for partners, managers and EQC reviewers working on IFRS engagements in countries where IFRS is not the predominant financial reporting framework. Similar policies apply for US Generally Accepted Auditing Standards (GAAS), US Generally Accepted Accounting Principles (GAAP), and the Standards of the PCAOB for SEC and Internal Control Over Financial Reporting (ICOFR) engagements performed outside of the US. These require that the partner, manager and EQC reviewer have completed relevant training and that the engagement team, collectively, has sufficient experience to perform the engagement or has implemented appropriate safeguards to address any shortfalls.
Access to specialist networks
Engagement teams have access to a network of KPMG specialists – either within their member firm or in other KPMG member firms. Engagement partners are responsible for ensuring that their engagement teams have the appropriate competences and capabilities including time and the use of relevant specialists.
The need for specialists in areas such as Information Technology, Tax, Treasury, Actuarial, Forensics, Valuations, to be assigned to a specific audit engagement is considered as part of the audit engagement acceptant and continuance process. Training on audit concepts is provided to specialists who are members of an audit team.
Robust challenge and review
Exercise of professional judgment and professional skepticism
By its nature KPMG’s audit ‘product’ is a judgment about people and issues. We recognize that the exercise of professional skepticism is critically important to our role as auditor in delivering a quality audit. Professional skepticism involves a questioning mind, an appetite to challenge and alertness to inconsistencies. It features prominently throughout auditing standards and attracts significant focus from regulators.
We have developed a professional judgment process which facilitates good judgment by introducing a structured approach to auditing areas that require significant judgment. It also reinforces the importance of independence and objectivity and emphasizes the importance of having the right mindset – the need to apply professional skepticism.
The use of the professional judgment process and the application of professional skepticism is reinforced through coaching and training, acknowledging that judgment is a skill developed over time and with different experiences.
Further details on the professional judgement framework can be found in the Supplementary Report.
Timely engagement quality control review
EQC reviewers are independent of the engagement team and have appropriate experience and knowledge to perform an objective review of the more critical decisions and judgments made by the engagement team and the appropriateness of the financial statements. We are continually seeking to strengthen and improve the role that the EQC review plays in audits and in recent years we have taken a number of actions to reinforce this, including issuing leading practices guidance, incorporating specific review requirements into eAudIT and developing policies relating to recognition, nomination and development.
An EQC reviewer is required to be appointed for audits, including any related review(s) of interim financial information, of all listed entities, non-listed entities with a high public profile, engagements that require an EQC review under applicable laws or regulations, and other engagements as designated by the Risk Management Partner or country Head of Audit.
The audit is completed only when the EQC reviewer is satisfied that all significant questions raised have been resolved, though the engagement partner is ultimately responsible for the resolution of accounting, auditing and financial reporting matters.
Innovative tools and technology
Each KPMG auditor around the world has access to the full suite of KPMG’s industry expertise and audit methodology through the electronic audit workflow tool, eAudIT. This leads KPMG engagement teams smoothly and consistently through the audit process (outlined in detail in the Supplementary Report). This tool continues to evolve to keep pace with the changing demands of the audit environment.
KPMG International is rolling out data and analytics (D&A) tools designed to assist engagement teams by analyzing client financial data in new ways to provide greater insights in our identification and evaluation of key audit risks and substantive testing. D&A innovations enable the engagement team, where appropriate, to dig deeper into the data, revealing more about the client’s business and its risks thereby transforming the KPMG audit by helping deliver high-quality, innovative audits with actionable insights for clients.
Further details on innovation in audit tools and technology are set out in the KPMG International Annual Review.
Appropriate auditors’ reports
Effective for December 2016 year ends onward, in compliance with the new IAASB requirements, we are enhancing auditor reporting for those auditors’ reports prepared under the ISAs. The changes in auditors’ reporting will give users more insight into the audit and improve transparency.
Communications with those charged with governance
Honest and candid communication with clients, including management and audit committees, is a key aspect of our reporting and quality service delivery. We achieve this through reports and presentations, attendance at audit committee or board meetings, and informal discussions with management and members of the audit committee. We stress the importance of keeping the client informed of issues arising throughout the audit and the need to listen and understand their views.
The role of audit committees is key in supporting better quality auditing by managing the relationship between company and auditor and challenging what auditors do and how they do it.
Our communication with audit committees includes overview of the scope and timing of the audit, significant findings, as well as confirmation of independence.
Audit Committee Institute
KPMG member firms provide audit committee and board members with practical insights, resources and peer-exchange opportunities focused on strengthening oversight of financial reporting and audit quality. Our offerings cover the array of challenges facing boards and businesses today – from risk management and emerging technologies to strategy and global compliance.
*Unless the context otherwise requires, throughout this document “KPMG” and “KPMG network” (“we”, “our”, and “us”) generally refers to the member firms of the KPMG network of independent firms affiliated with KPMG International, a Swiss entity that services as a coordinating entity for the KPMG network. KPMG International provides no client services.