Big Four firm KPMG is adjusting to a new regulatory environment as the Securities and Exchange Commission and the Public Company Accounting Oversight Board signal a tougher stance, even as the firm rolls out its latest auditing technology.
KPMG vice chair of audit Scott Flynn sees great potential from that in-house auditing software, KPMG Clara.
“It’s really just an exciting time to be an auditor,” he said. “The audit process generally is evolving so rapidly, and we’re on this precipice of time where technology is enabling us to do things, whether it be artificial intelligence, data analytics or other broad automation. We’re really excited because this has been a journey for us over the last several years to get our entire audit practice onto a common platform, KPMG Clara. Not only is it cloud based, it’s a platform that gives us the ability through API layers to bring in enabling technology. We’ve optimized our methodology, so it’s giving us an opportunity to drive efficiency, insights, capabilities and learning while people are actually in the tool with examples and online training classes.”
The technology affords KPMG opportunities for a wide range of improvements. “Having a platform like that enables us to lean heavily into standardizing our processes and really leverage automation to drive efficiencies,” said Flynn. “It also gives us a platform to develop new skills. As you think about what’s required to lean into automation and what companies are doing, Clara gives us an ability to push into what we talk about as the next generation of auditor, those people that are highly tech-enabled, that have unique data and analytics skills, that are really critical. It’s going to evolve to critical thinking and get further away from what I would call rote tasks, and [move into] really doing higher-level analysis, focusing on the areas that are really the critical judgments that are made as part of an audit process.”
SEC and PCAOB
At the same time, the firm is adjusting to a more demanding regulatory environment under the Biden administration. The Securities and Exchange Commission has reportedly sent letters to the Big Four firms asking about auditor independence and conflicts of interest arising from selling non-audit consulting services, according to
“Certainly to the extent that we get inquiries, we’re obviously responsive, fully committed to it, and to the extent that we get any requests, we’re absolutely all about compliance,” said Flynn. “Our commitment to independence remains at the heightened levels that we’ve always had it.”
The SEC has been proposing a number of new rules under its new chairman, Gary Gensler. “The SEC has been very clear about this,” said Flynn. “Do all this, but be mindful of independence and make sure that we as a firm are not doing anything in appearance and fact that is going to suggest that we are not independent. That’s very top of mind for us as an organization, and obviously, we remain very, very committed to that.”
The PCAOB is in the process of reviving its outside advisory groups, including an Investor Advisory Group that hasn’t met since 2018. The PCAOB’s new chair, Erica Williams, who used to work at the SEC, is aiming to improve audit quality. Flynn said that is his goal as well.
“I go back to the onset of Sarbanes-Oxley," said Flynn. "There is no question that audit quality has improved. And for us, we’ve had a chance now to meet with Chair Williams and have a conversation about the agenda. And we’re foundationally committed to exactly the same things, which are improving audit quality and protecting the capital markets. I think that’s clearly their remit, and that’s clearly our remit.”
The PCAOB recently issued a
“The big thing, and most importantly for our firm, is making sure of our people that could potentially be impacted,” said Flynn. “We have some rotationals from those impacted countries, and a number of people on our team that have family impacts in Russia, in Ukraine, in Belarus. And so first and foremost, being focused on the health and the mental wellbeing of those people is of critical importance. Beyond that, the big thing is making sure that we are absolutely complying with all of the sanctions. Certainly to the extent that the U.S. government has sanctioned companies, then we have to make sure that we are not doing anything to violate any sanctioning."
From an accounting and reporting standpoint, he continued, the firm has put out a significant amount of guidance for its professionals related to accounting and auditing considerations. "Obviously, things like impairment, going concern, asset valuation — on those types of considerations we’ve put out a significant amount of guidance to help support our professionals and make sure that our teams are armed and equipped with the right tools to be able to address those audit considerations and accounting considerations," he explained.
Diversity efforts
KPMG has been taking steps to improve the diversity of its firm, while training young accountants at its Lakehouse facility in Orlando, Florida. The AICPA issued a
“This is not something that you flip a switch on overnight,” said Flynn. “It is a long-term commitment that we’ve made on the part of the firm. What I’m really excited about is some of the things that we’re doing in response to it. If I just look at the way that we’re recruiting people, historically you would go on campus and you’d have probably a number of select schools that you historically had really good success with. And we’ve moved now to more of an open platform. That open platform allows for anybody to apply. When you think about trying to reach underrepresented groups, you need to make sure that it’s as open an opportunity as it possibly can be.”
KPMG is also offering scholarships to bring in students from historically Black colleges and universities and get high school students interested in the firm as well.
“We have had a master’s in accounting and data analytics program for some time now, and it was driven at providing scholarships and getting people with those types of skill sets into our firm,” said Flynn. “Now it’s evolved into a curriculum program. What I’m really excited about is we’re actually pushing that into and working with a number of historically Black colleges to get that master’s in accounting and data analytics curriculum into their schools. When you talk about trying to drive diversity like this, you have to lean in with those types of support programs. But then you also have to do some grassroots work at the high school level, at levels where you start leaning in and trying to build relationships and advocate for the importance of the profession. I think that’s one of the things that we really need to do as a profession is to demonstrate the value of being a CPA.”
The firm is able to recruit talent from around the country and allow new employees to work virtually. “This virtual environment has created opportunities for us to give our people of all types and also underrepresented groups a chance to potentially go into our national office on a virtual basis,” said Flynn. “Historically they would have had to move to New York. It’s created an ability for us to give our people earlier experiences in that technical group — which is foundationally the group that rises to leadership levels in our organization — and give those people exposure to that group virtually at an earlier stage in their career. It’s about hiring, but then also retaining and developing and providing leadership opportunities, and we’re hyper-focused on it.”
Besides data analytics, the firm is also recruiting young people into other areas they might be interested in, such as environmental, social and governance reporting and assurance. That has become especially important with the SEC’s recent proposal for climate-related disclosures (
“The SEC has a role to play, as it has for 88 years, and it can now, in bringing some standardization to the conversation, which is already happening between issuers on the one side, and investors on the other side, particularly when it comes to disclosures that are material to the investors,” said SEC chairman Gary Gensler during a webinar Tuesday hosted by sustainability investing nonprofit Ceres. “In making decisions about disclosures under the federal securities laws, including decisions about the proposed climate-related disclosures, I am guided by our three-part mission: protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. … Here’s the thing: Climate disclosures are already happening, and today investors are already making investment decisions using information about climate risk. Today, hundreds of companies are already disclosing information, and that conversation is already going on.”
Firms like KPMG have long been working in the sustainability area, helping their clients with sustainability reporting. “In the external marketplace relative to ESG, obviously with the SEC putting out their rules around ESG, it’s top of mind for boards,” said Flynn. “It’s top of mind for C-suites, and it’s broadening the mission for us as auditors. I think it’s a really significant moment. I think the investor community has certainly spoken. It’s obviously critical to Chairman Gensler to get this passed and it's going to require a rethink on the parts of management and boards relative to skill sets, relative to process and procedures. And then for us, as this evolves, providing assurance. That’s a huge transformative change relative to impacts on the profession.”
KPMG itself has a long-term strategy known as Accelerate 2025 to increase diversity in the firm over the next few years (
“The other big place where we've got to focus is just on talent more broadly. Accelerate 2025 is a strategy for our firm,” said Flynn. “When Paul Knopp came in as our CEO and chairman, he made it a point that one of the foundational principles for our firm is that we are going to try to reflect society. That has been a significant undertaking for us, to try and really lean hard into increasing the level of diversity in our firm, being very equitable and inclusive and really thinking about given our profession and what our responsibilities are, how do we get a more diverse population and larger parts of the underrepresented groups to want to be accountants, to want to be CPAs. There’s a big focus in our firm on that and the drive to 2025.”
