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KPMG International
Company Profile
Copyright 2021, Faulkner Information Services. All Rights
Reserved.
Docid: 00015183
Publication Date: 2102
Report Type: VENDOR
Preview
KPMG International is a privately held accounting firm and one of the
remaining Big Four auditors, which together provide a significant majority of
all global tax and auditing services. KPMG’s network includes thousands of LLC
member firms serving core markets in the Americas; Europe, the Middle East, and
Africa; and Asia. KPMG members provide audit, tax, and advisory services to
large enterprises, banks, and government clients.
Report Contents:
Fast Facts
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Name: KPMG International
Headquarters
Laan van Langerhuize 1
1186 DS Amstelveen
The Netherlands
Phone: +31-020-656-7890
Fax: +31-020-656-7700
Web: https://www.kpmg.com/
Type of Vendor: Accounting and Related Services
Founded: 1987
Service Areas: Global
Profile
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KPMG International is a global accounting firm that provides auditing,
financial advisory, and tax and legal services for its business clients,
including 70 percent of the Fortune 500. A Swiss entity, KPMG is one of the
remaining Big Four audit firms, along with Deloitte, Ernst & Young, and
PricewaterhouseCoopers. Once a large consultancy as well, KPMG spun off its
former KPMG Consulting arm as BearingPoint in 2001.
History & Milestone Events
KPMG has become one of the world’s largest accounting firms through a series of
acquisitions. The modern-day company was created in 1987 when Peat Marwick
International (PMI) merged with Klynveld Main Goerdeler (KMG), but KPMG can
trace its roots back to 1897. Major milestones in the company’s history are
listed in the following timeline:
- 1897– James
Marwick and Roger Mitchell formed an accounting firm names Marwick, Mitchell
& Company. - 1925– Marwick, Mitchell & Company merged with WB Peat &
Company, creating Peat, Marwick, Mitchell, & Company. - 1950– The
company merged with Barrow, Wade, Guthrie, one of the oldest accounting
firms in the United States. - 1978– The
company changed its name to Peat Marwick International (PMI). - 1987– PMI
merged with Klynveld Main Goerdeler (KMG) to form KPMG. - 1997– KPMG announced plans to merge with Ernst & Young. The
merger was ultimately called off because the deal would have to clear lengthy
regulatory hurdles in the United States, Europe, Australia, Canada, and Japan.
Similarly, several clients expressed concerns that a merger would create a
conflict of interest by combining two former competitors. - 2001– KPMG
separated its consulting and accounting units and took its consulting
business (KPMG Consulting) public as BearingPoint. - 2002– KPMG
sold its British and Dutch consultancy units to Atos Origin. - 2003– The company divested its legal arm, Klegal.
- 2005– KPMG
admitted that it created illegal tax shelters that helped some of its
clients avoid paying $2.5 billion in taxes. As part of a deferred
prosecution agreement with the US Department of Justice, KPMG agreed to pay
$456 million in fines. In addition, 19 KPMG employees were indicted,
including the company’s former deputy chairman and its former CFO. - 2006– KPMG
restructured some of its business by merging its operations in German and
the United Kingdom into KPMG Europe. - 2007– The company folded its operations in Liechtenstein and Switzerland
into KPMG Europe. - 2009– Revised nine
advisory service lines into three – Performance and Technology,
Transactions and Restructuring, and Risk and Compliance. - 2011– Posted double-digit (10.1 percent) revenue growth for the
fiscal year, showing recovery despite continued market instability. Raised
$3.3 million for Japan earthquake. Separately, a probe in Japan investigated
KPMG’s signing off on camera-maker Olympus’ audit without flagging fraudulent
deals. - 2013– Chosen to join several auditing firms to lead the
Vatican’s investigation and reforms of its financial operations.1
Posted record revenue despite challenging
economic conditions. - 2014 – KPMG Australia purchased a data analytics
company, Bottlenose, based in the US. - 2015 – KPMG acquired Beacon Partners, a healthcare consulting firm that
offers strategic management and clinical and information technology
consulting services to healthcare providers. - 2017 – The Gupta family corruption scandal in South Africa breaks
and KPMG is under fire for its reckless auditing practices. - 2018 – The collapse of Carillion, a UK-based construction
services firm, brings the auditing practices of KPMG and the other
accountancy firms into the spotlight, where they are highly
criticized. - 2019 – KPMG pays a $50 million fine to settle a case with the
Securities and Exchange Commission after the firm altered auditing work
following the receipt of stolen information that were to be conducted by
the Public Company Accounting Oversight Board (PCAOB). - 2021 – For the first time in company history, KPMG
places a woman in a top position as Bina Mehta is appointed interim chair
after UK chairman Bill Michael steps down. Michael was replaced while an
investigation reviews comments made during a company conference call in
which he told staff to "stop moaning" about COVID-19 restrictions and that
"There is no such thing as unconscious bias."
Organization. KPMG International is a network of
professional member firms that operate in 147 countries, with roughly 219,000
employees as of 2019. Member firms operate in three core geographic regions: the
Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific. KPMG
separates operations into Audit Services, Tax Services, and Advisory Services.
Strategy
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KPMG International’s strategy is to provide integrated professional services
through its network of locally-responsible, worldwide LLC member firms. KPMG combines its auditing, tax,
and advisory operations to provide a multi-service approach to large-sized
clientele. KPMG serves clients such as corporations, government and public
sector agencies, and non-profits.
KPMG member firms are instructed to uphold the company’s values of integrity and accountability.
KPMG members incorporate the company’s value system into their services,
including a focus on corporate citizenship and social and environmental
sustainability. KPMG also releases its own annual sustainability reports to this
effect.
Strengths
Auditing Presence
KPMG International’s biggest strength is its share of the auditing market,
which dwarfs that of any non-Big Four firm. The company has a global presence
and is one of the most recognized names in the accounting industry. KPMG’s
global presence allows it to assess the regulatory and competitive challenges
that clients face. As its offices are regional, they are positioned to provide
value-priced tax and auditing services in each market.
Services Leader
Several third-party organizations have ranked KPMG as a leader in services
and consulting. Among its latest accolades are:
- "Best in Class" for Enterprise Services Management by ALM
Intelligence (December 2019) - Named a "Leader" in Cybersecurity Consulting 2019 by ALM
Intelligence (December 2019) - Ranked #2 in the HFS Top 10 Google AI Services report (October 2019)
- Ranked #1 in overall quality for global financial services consulting by
Source Global Research (September 2019) - Named a "Leader" in Change and Workforce Management by ALM
Intelligence (June 2019) - Named a "Leader" in Forrester Research’s Global Cybersecurity
Consulting Providers, Q2 2019 (May 2019)
Weaknesses
South African Scandal
KPMG’s South African division is currently caught up in a massive corruption
scandal. The auditor is accused of enabling the controversial Gupta family, an
Indian-born South African family that owns a business empire, to commit tax
evasion and corruption. KPMG has denied wrongdoing but eight company officials,
including its chairman and CEO of that branch, have resigned in the wake of the
scandal. Several clients have dropped KPMG as their auditing firm. The
"Gupta Scandal," which involves illicit ties between three Gupta
brothers and South African President Jacob Zuma, has pulled in several companies
and rocked British public relations firm Bell Pottinger. KPMG allowed a Gupta
company to cover the cost of a wedding as a business expense and also wrote, but
later retracted, an untrue report that supported spying on former South African
Finance Minister Pravin Gordhan. KPMG has said that its South African executives
"made serious mistakes and errors of judgment." As of late 2018,
KPMG continued to lose staff and clients in South Africa as a result of the
corruption scandal. Dimension Data Holdings was among the clients going
elsewhere – in this case, to competitor Ernst & Young.
Carillion’s Downfall
The collapse of Carillion, a UK facilities management and construction
services company, has laid some blame at the feet of the "Big Four"
accountancy firms, KPMG among them. KPMG earned about £1.5 million ($1.9
million USD) annually to audit Carillion, which posted healthy earnings even
when the company was faltering. Apparently, KPMG looked the other way as
Carillion’s finances were tanking. KPMG’s role has been reviewed by the
Financial Reporting Council (FRC), a UK watchdog, but all four accounting firms
gave Carillion advice before the business shuttered. KPMG, in particular, has
been heavily criticized by the FRC and is being investigated to determine if the
firm breached any ethical or technical auditing standards. In January 2020, the
FRC missed its own deadline for investigating KPMG’s 2013-2017 audits of
Carillion. Instead, the FRC will decide if it will file disciplinary action
against KPMG. “The scale and complexity of this case is exceptional, with a
huge volume of documents and information that has had to be reviewed and
analysed,” the FRC said in a statement.1
Big Four Breakup?
KPMG, PricewaterhouseCoopers, Ernst & Young, and Deloitte are all under
intense scrutiny and there has been a call by some experts to "break
up" the Big Four as these companies have put their own finances above
appropriately and ethically auditing their clients. As reported in The
Guardian, which discussed auditing practices in the UK, "All the firms
earn nine-figure sums annually from the public sector, much involving the
outsourcing of public services, plus even more from the companies such as
Carillion that benefit. The incentive not to blow the whistle on a flawed
business model is obvious."2
"Particularly Troubling" Conduct
In 2019, KPMG agreed to settle a separate charge from the SEC. This one involved
KPMG’s altered audit after it received stolen information about inspections that
the Public Company Accounting Oversight Board (PCAOB) would be conducting. In
addition, some of the firm’s auditors cheated on training exams. KPMG will
comply with various conditions, including hiring an independent consultant to
review KPMG’s ethics and integrity controls. A co-director from the SEC’s
Enforcement Division said, "This conduct was particularly troubling because
of the unique position of trust that audit professionals hold. Investors and
other market professionals rely on these gatekeepers to fulfill a critical role
in our capital markets."
Outlook
Scandalous Behavior
KPMG has been entangled in several scandals in the past few years. In
mid-2019, KPMG agreed to pay a $50 million penalty after it was alleged that
former employees stole information to change some of its previous auditing work
and cheated on exams by sharing answers and manipulating test results. This fine
was among the largest ever charged to an auditor by the SEC.
In February 2021, UK chairman Bill Michael stepped down as an investigation
reviewed comments made during a staff conference call. During a Zoom call with approximately 1,500 members of the firm’s financial
services sector, Michael stated that the concept of unconscious bias is
"complete and utter crap." A recording of the meeting shows Michael
saying, "There is no such thing as unconscious bias, I don’t buy it. Because
after every single unconscious bias training that has ever been done, nothing’s
ever improved.” Michael was also castigated by staff for telling them
to "stop moaning" about COVID-19 lockdown restrictions during the call and that workers needed
to "stop playing the victim card." Although Michael apologized later
during the meeting and e-mailed an apology to the full staff, he was replaced on an interim basis
by Bina Mehta. Mehta is the first woman to take over a leadership position in
the company’s history.3
Lack of Quality Standards
There’s been an outcry for the Big Four accounting firms to improve audit
quality after the Financial Reporting Council found a significant decrease in
standards – or if this doesn’t happen, then there should be a breakup of the
firms altogether as they threaten competition. KPMG, in particular, was
reprimanded for having an "unacceptable deterioration in quality." The
firm is looking at ways to reduce conflicts of interest and reposition back to
auditing. It has established new ethical practices and procedures.
Collaboration with Microsoft
In December 2019, Microsoft and KPMG announced a $5 billion partnership to
accelerate digital transformations for KPMG’s member firms and mutual clients.
KPMG is updating its workplace with the Microsoft 365 suite of cloud-based
collaboration and productivity tools and will also use Azure and Azure AI as the
backbone for a new global cloud-based platform. Global CEO and Chairman Bill
Thomas said, "Our alliance with Microsoft has become a critical component
in helping us deliver industry-leading solutions and services to clients… By
harnessing Microsoft’s intelligent and trusted cloud, we aim to help clients be
at the forefront of change and better prepared for a digital-first future."
Product Lines
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KPMG breaks down its services into three core areas: Audit and Assurance, Tax
and Legal, and Advisory. Audit and Assurance, Tax and Legal, and Advisory. The company’s
service areas are outlined in Table 1.
| Service | Description | Competitors |
|---|---|---|
|
Audit and Assurance |
KPMG offers global audit services including financial statement audits using
|
Deloitte, Ernst & Young, Grant Thornton, PwC |
| Tax and Legal |
KPMG International’s member firms offer services to assist clients with effective tax planning while staying compliant. Services include:
|
Deloitte, Ernst & Young, Grant Thornton, PwC |
| Advisory |
KPMG offers advisory services for a number of enterprise issues, including:
|
Deloitte, Ernst & Young, Grant Thornton, PwC |
| Industries |
To help clients in specific sectors meet their unique business challenges, KPMG offers services that cater to these organizations. These industry-specific solutions are geared towards, among others:
|
Deloitte, Ernst & Young, PwC |
Competitors
- Deloitte: https://www.2deloitte.com/
- Ernst & Young International: https://www.ey.com/
- Grant Thornton: https://www.grantthornton.com/
- PricewaterhouseCoopers: https://www.pwc.com/
Activity
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Products and Services
KPMG was granted a US
patent for a blockchain-based method to improve the “selection,
curation, and management of data used to train machine learning
and artificial intelligence (AI) models.” This patent, the
company stated, demonstrates the use of blockchain in storing,
tracking, and tracing data throughout the AI lifecycle, including
training, deployment, and monitoring of models and their
algorithms.
(02/25/2020)
KPMG released a new
security offering, with Microsoft Azure Sentinel, to
improve cyberdefense capabilities. The release is designed to
enhance security monitoring and incident response by combining
KPMG’s cybersecurity, incident response, and general industry
experience with Microsoft advanced cybersecurity technology.
(02/24/2020)
Alliances and Joint Ventures
KPMG announced that it will provide
tax services to HP Inc to support its operations in 60
countries. The agreement will see select members of HP’s finance
team join tax teams across the global KPMG network of member
firms.
(08/03/2020)
KPMG and Microsoft have entered into a collaboration agreement. This
partnership will see KPMG use Microsoft Power Platform tools –
including Power Apps, Teams, and Azure – to specifically offer
services and data models, analytics, and access to cloud-based
products.
(06/29/2020)
Personnel and Organizational
Concluding that his position had become “untenable,” the UK chairman of
KPMG resigned over comments made during a staff Zoom call. According to
the BBC,
Bill Michael was recorded telling staff to "stop moaning" about the impact
of the pandemic and lockdown on their lives and to stop "playing the victim
card" after fielding questions about potential pay and bonus cuts. In the
same meeting, Michael also questioned the concept of unconscious bias,
saying, "There is no such thing as unconscious bias. I don’t buy it, because
after every single unconscious bias training that’s ever been done nothing
has ever improved." Michael initially stepped aside pending an investigation
into his comments before making the move permanent. Bina Mehta has been
named interim chair, becoming the first female leader in KPMG’s 150-year
history. In addition, Mary O’Connor will take over Michael’s day-to-day
executive responsibilities as acting senior partner.
(02/12/2021)
KPMG named Matt
Kramer as National Sector Leader, Consumer & Retail. Effective
immediately, Kramer succeeds Mark Schmeling, who was recently
named Leader, Advisory – Commercial Markets. Kramer has been
with KPMG for 27 years.
(12/07/2020)
KPMG named Mark Gibson as National Sector Leader for US Technology, Media, and Telecommunications, effective immediately. Gibson has been with KPMG for 18 years.
(11/12/2020)
KPMG International re-elected William Thomas for a second term as Global Chairman & CEO. The decision comes one year ahead of schedule, and extends Thomas’ tenure to September 30, 2025.
(10/22/2020)
KPMG International selected Carl Carande as Global Head of Advisory. Carande replaces Mark Goodburn.
(09/21/2020)
KPMG designated David
Linke as Global Head of Tax & Legal Services. Linke, who takes
office on October 1, 2020, succeeds Jane McCormick. The exec
currently leads the Asia Pacific and Australia Regional Tax
businesses.
(07/27/2020)
KPMG has elected Paul
Knopp and Laura Newinski, respectively, to sit as its next
Chairman / CEO and Deputy Chair. Knopp – who has been with the
company for 36 years as a Director and leader in areas such as
manufacturing, life sciences, transportation, professional
services, and technology – will serve for a five-year term
beginning on July 1, 2020. Newinsky, meanwhile, will transition
from her role as Vice Chair of Operations. The execs succeed
Lynne Doughtie and P Scott Ozanus, respectively.
(03/03/2020)
Financials
KPMG reported a
modest Y2Y decline in full fiscal year 2020 revenues. The
12-month period ended September 30, 2020 included sales of
$29.22 billion, down 2 percent when compared to fiscal 2019
revenues of $29.75 billion. KPMG noted “strong demand” for
Regulatory Driven Transformation, Cyber and Legal Services.
(12/17/2020)
KPMG has taken a
minority interest in LumaTax.
This firm provides sales and use-tax technology that focuses
sales-tax compliance and audits. Terms were not released.
(02/05/2020)
References
1 Tabby Kinder. "Decision on KPMG’s Audit of Carillion
Delayed." Financial Times. January 10, 2020.
2 Richard Brooks. "Carillion Fiasco Shows Why Auditors Must Be
Accountable to Parliament." The Guardian. May 20, 2018.
3 Joanna Partridge. "’Unconscious Bias Is Crap’: KPMG Staff
Share Shock at UK Chair’s Comments." The Guardian. February 11, 2021.
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