Temasek uses auditing firm KPMG which was severely criticised by UK watchdog for poor quality work

Last month, BBC reported that international audit firm KPMG has been severely criticised by UK watchdog, the Financial Reporting Council ('KPMG's audit work unacceptable, says watchdog', 18 Jun).

The UK Financial Reporting Council (FRC) is an independent regulator responsible for promoting high quality corporate governance and reporting to foster investment in UK. Its board of directors is appointed by the UK Secretary of State for Business, Energy and Industrial Strategy. FRC plays a crucial role in the oversight and development of corporate governance standards such as the UK Corporate Governance Code and standards for the accounting industry.

UK FRC said that KPMG audits had shown an "unacceptable deterioration" and will be subject to closer supervision.

Every year, the UK FRC reviews the audits of Britain's biggest companies to ensure they meet certain standards. The FRC noted problems at other auditing firms too, but KPMG was specially singled out for the poor quality of its work.

"There has been an unacceptable deterioration in quality at one firm, KPMG," the FRC said in a statement. "50% of KPMG's FTSE 350 audits required more than just limited improvements, compared to 35% in the previous year."

The increased scrutiny of KPMG will now involve the FRC inspecting 25% more audits done by the firm in the 2018-19 financial year, the first time the FRC has taken such action, BBC reported.

KPMG acknowledged the deterioration of its audit and said that it is taking "action to resolve this". It was especially criticised over its audit of UK construction firm Carillion, which collapsed earlier this year. FRC has opened an investigation into the KPMG group under the Audit Enforcement Procedure.

KPMG was also recently fined £3.2m by FRC over its audit of insurance firm Quindell. Last year, the FRC opened an investigation into KPMG's audit of the accounts of aero-engine maker Rolls-Royce.

The accounting industry, especially KMPG, has faced a lot of criticism in the last few years over whether their verdicts on companies' accounts can be trusted, BBC reported.

In Malaysia last month, KPMG also retracted its audit reports on Malaysia's 1MDB for financial years ended March 2010, 2011 and 2012. KPMG told the company not to rely on its reports over the three years as they don't show "true and fair" assessment of the troubled state fund's finances. This came about after the Malaysian opposition won the recent general election in Malaysia and started probing the affairs of 1MDB under the previous Malaysian government.

Temasek uses KPMG

Yesterday (10 Jul), Temasek reported that it has attained a record net portfolio value of S$308 billion and a net cash position for the financial year that ended on 31 March this year.

Temasek’s one-year Total Shareholder Return (TSR) was also reported to be 12.19%, with compounded annualised returns of 15% since inception in 1974.

Temasek Chairman, Mr Lim Boon Heng, commented, "Our journey as a generational investor is one that we take with a deep sense of purpose and responsibility; we are committed to do well as an investor, determined to do right as an institution, and inspired to do good as a steward."

In any case, on its 2018 Financial Report, it listed Temasek's auditor as KPMG. In the report, Temasek stated that KPMG has expressed "unmodified opinions on the audited statutory consolidated financial statements" of Temasek Holdings and its subsidiaries for the financial year ended 31 Mar 2009 to 2018: