KPMG’s Road to Redemption

At Legal & General’s annual meeting in May 2022, one frustrated shareholder stood up and delivered a zinger: “Don’t we deserve auditors of the very highest reputation?” The audience’s applause said it all—KPMG, one of the Big Four accounting firms, was in a predicament after years of audit failings, regulatory fines, and reputation hits. Fast forward to today, KPMG UK is on the mend under CEO Jon Holt’s leadership. But the question lingers: is this comeback story enough to close the gap with its rivals?

When Your Auditor Gets Roasted

If you thought your job had tough critics, imagine being told by a Member of Parliament (MP) that they “wouldn’t hire you to audit their fridge.” That’s exactly what Labour MP Peter Kyle said to KPMG’s audit heads after the Carillion fiasco in 2018. The collapse of Carillion, a massive outsourcing firm, left two unfinished hospitals, 3,000 job losses, and KPMG in the regulatory doghouse. The Financial Reporting Council (FRC) slapped the firm with a record £21 million fine for “textbook failures.”

But the fallout didn’t stop there. KPMG was found guilty of misleading regulators during their inspections of Carillion’s audits, earning an additional £14.4 million fine. If that wasn’t enough, the firm shelled out an undisclosed sum to settle a £1.3 billion lawsuit brought by Carillion’s liquidators. Holt, who stepped into the CEO role in April 2021, inherited a mess. “It felt like cycling uphill,” he told the Financial Times. And yet, under his watch, the firm’s audits are no longer the punchline of regulatory reviews.

KPMG US Faces Scrutiny

While KPMG UK navigates its comeback, the firm’s US division is under pressure after the resignation of three senior executives in 2023 amidst investigations into its auditing practices. Questions surrounding internal oversight and client management have raised concerns among regulators, mirroring the challenges faced by its UK counterpart. The situation adds urgency for the global leadership to align efforts and restore confidence across all markets.

Can Jon Holt Steady the Ship?

Jon Holt, a 30-year KPMG veteran, has been credited with steering the firm away from its tumultuous past. Regulators now call him a “breath of fresh air,” and his leadership earned him an extension to stay at the helm until 2029.

Holt’s strategy? Focus on culture, consistency, and quality. He tied diversity and inclusion goals to partner remuneration and launched a “high support, high challenge” approach to audits. This means auditors are expected to hold their clients accountable, and the firm promises to have their back when they do.

The results speak for themselves. In 2023, KPMG’s audits received an 89% quality rating from the FRC, second only to Deloitte. Revenues in the audit division jumped 30% between 2021 and 2023, reaching £879 million. But let’s not pop the champagne just yet. While KPMG’s audit business is thriving, its consulting arm is still playing catch-up.

Culture Shock and Lessons Learned

Culture has been a cornerstone of Holt’s turnaround strategy. After taking over from Bill Michael—who infamously told staff to “stop moaning” about pandemic work conditions—Holt commissioned a firm-wide review. The result? A push for transparency, accountability, and diversity.

But change hasn’t come without challenges. The firm recently announced 200 job cuts in back-office and client-facing roles, citing a slowdown in demand for some services. KPMG isn’t alone in this; all Big Four firms are facing similar slowdowns after the pandemic boom. 

On the brighter side, KPMG secured a £223 million government contract to train civil servants—a deal representing 8% of its annual UK revenue. Winning this contract highlights the firm’s ability to stay competitive in public sector work, even as it grapples with challenges in other areas.

From Fridge Audits to Redemption

KPMG’s turnaround has been nothing short of remarkable, but it’s not all sunshine and rainbows. While the firm has successfully repaired its audit reputation, its consulting arm remains a work in progress. 

The audit division’s transformation, however, offers lessons for the entire profession. The FRC’s decision to assign a dedicated “project team” to oversee KPMG’s banking audits after Carillion was an unprecedented move. Today, that intensive supervision is no longer needed—a testament to the firm’s improvements.

“We’ve laid the foundations for a successful future,” Holt says. Whether those foundations can support a stronger consulting arm remains to be seen.  

The Elephant in the Room

Consulting has been a money-maker for Deloitte, PwC, and EY, but KPMG’s growth in this area has lagged. Between 2021 and 2023, KPMG’s consulting revenues grew by 33% to £1.01 billion. Impressive? Sure, until you compare it to EY’s 57% growth during the same period. Critics argue that KPMG’s consulting division hasn’t scaled its technology capabilities or recruited senior talent like its competitors. “Their strategy capability lags the competition,” a former consultant said bluntly.

This sluggish growth hasn’t gone unnoticed. Some speculate that Holt’s audit-heavy background may limit his ability to revitalize consulting. However, he’s optimistic, citing plans to integrate KPMG’s UK and Swiss operations to better serve international clients.

Still, KPMG is the smallest of the Big Four in the UK, with 2023 revenues of £2.96 billion. Rivals like Deloitte and PwC include sales from other regions, making direct comparisons tricky, but the gap is hard to ignore.

So, What’s Next?

For Holt, the goal is clear: by 2029, he wants KPMG to be seen as a leader, not a laggard. But the road ahead isn’t without potholes. As businesses tighten budgets for corporate advice and consulting, KPMG must prove it can innovate and compete. 

For now, the firm has one foot firmly on solid ground and the other stepping into uncharted territory. Whether it can maintain this balance will determine if its comeback story is one for the books—or just a flash in the pan. 

Bottom Line: KPMG UK’s journey from crisis to recovery is a masterclass in resilience. With Jon Holt at the center, the firm has rebuilt its audit reputation. But if it wants to play with the big dogs in consulting, it’ll need more than a fresh coat of paint. Only time will tell if this redemption arc sticks to the landing. Stay updated with more insights and subscribe to our weekly newsletter for the latest trends!