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September 30, 2023

KPMG’s Audit Business Is Back on Life Support

Last night we finally learned KPMG's revenue results for FY 2012 and they were…UGH.

Leave it to my former employer to set me up and allow me to make a prediction that was DOOMED to be wrong. For whatever reason, I thought the House of Klynveld could pull off 8% global revenue growth, what with booming non-audit services and all, and overtake Ernst & Young for 3rd on the medal stand. 

Um, no.

Eight percent wasn't a gimmie, but it wasn't outside the firm's capabilities either. In FY 2011, they had over 10% global growth, the largest of the Big 4. This year they managed 1.4% global growth. The press release has the larger, "local currency" growth number out front, which is a PR move so transparent that anyone with the attention span of a gnat can see that for the diversion it is.

ANYWAY, here's the final revenue rundown for the Big 4:

PwC – $31.5 billion
Deloitte – $31.3 billion
Ernst & Young – $24.4 billion
KPMG – $23.0 billion  
You can find all the little silver linings in the regional and business line numbers you want, but at the end of the day, this was a lackluster finish for the HoK.
What happened? Here's a clue:
Growth was strongest in advisory services, which grew by 8.3 percent, to $7.86 billion, and in tax, which grew by 6.3 percent to $4.86 billion while audit revenues grew by only 0.9 percent, to $10.31 billion.
UPDATE: These percentages are also in the local currency. In USD, advisory grew 4.2%, tax grew 3.6%, and audit shrunk 1.6%. Yes, that is a dreadful audit number. But it's nothing new. Prior to the modest growth HoK had last year, the audit business shrunk in 2009 and 2010, and now it's back to MEH.  
KPMG Chairman Michael Andrew tries to explain what's going on here:
“On the audit side, the market has never been more competitive and we are focused on continuing to improve audit quality, as evidenced by our significant investments in our global audit platform that surpassed $50 million, in addition to the $100 million invested over the past several years.”
Since we only have top-line revenues to consider, talking about the investments made by the firm is pretty meaningless. And that competitive market? Fine, we'll get to that in a minute but really, the audit practice stunk up the joint and Peter Nash, the firm's Australian Chairman, isn't exactly optimistic about next year:
[W]hile the firm was hopeful of matching last year's annual growth rate in 2013, it would be tough. "We would like to maintain the growth rate but we are going to have to work hard and run harder to do that," he told The Australian yesterday. "It was by and large a fairly difficult year. It got more difficult as the year went on. That is going to flow into a pretty challenging 12 months as we move forward." 
And with this story of the audit market "never [being] more competitive," KPMG has put itself right alongside PwC and Deloitte trying to explain to anyone that will listen that things are tough out there for opiners. That's great and all but with an increased focus on non-audit services, the firms need to tell themselves (and everyone else) a story that takes the focus off of a marginalized business line that is under increasing international regulatory pressure at the expense of another one that is chugging along quite nicely. 
But something exciting is bound to happen that will change everything again. Surely I'll be right about that. 

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