KPMG LLP reported today that it UK and Germany member firms will be merging into a single entity, KPMG Europe LLP, which will remain a member firm of KPMG International and have revenues of £2 billion - the largest fully integrated accountancy firm in Europe. The firm will be a new UK registered LLP with 17,000 partners and staff in 44 UK and German offices and HQ in Frankfurt.
Why is KPMG LLP doing this? It appears to be a part of a mega-plan to create a fully integrated KPMG LLP member firm in Europe with the hope that other KPMG member firms in Europe will soon join this behemoth.
KPMG Europe LLP will be chaired jointly by John Griffith-Jones, currently Chairman of KPMG LLP (UK), and Prof. Rolf Nonnenmacher, currently Chairman of the Managing Board, KPMG Deutsche Treuhand-Gesellschaft AG. Both UK and German boards have blessed the merger, now pending ratification from UK and German partners in December 2006.
Clearly this "innovative and ground-breaking move" was done both in response to changing external environments and the need to be proactive in face of increasing regulation in Europe.
First, size creates strength, and ability to withstand monetary shocks and regulatory retributions. Consider that KPMG is reeling under a $456 million fine in the US for inappropriate tax shelters, the pain is lessened over a larger number of partners.
Second, clients, investors and capital markets may benefit as Euro-spanning companies can engage a single firm in UK and Germany.
Third, Europe is increasingly becoming the exchange of choice to list for many companies which do not wish to deal with onerous Sarbanes Oxley measures in the US, and the larger public companies may prefer larger Euro audit firms with pan-European presence.
Most importantly, KPMG is reacting quickly to massive European regulatory changes. The European Commission's Eighth Directive legislation clarifies the duty of statutory auditors and sets out certain principles to help ensure their objectivity so that investors and other interested parties can rely on the accuracy of audited accounts. Europe is quickly going the way of the SEC and PCAOB with increasing oversight, and financial fines on misbehaving firms.
The rest of the press release is just motherhood: increased strength, more opportunities for their people, increased investor confidence etc. etc.
Clearly, this is a first shot in Europe and is bound to set off a wide variety of large and small scale mergers across the Big Four firms, and we will soon begin to see rumblings or actual actions from the other audit firms: DT, EY and PwC. We shall be watching the changing landscape as it quickly changes from the current state.
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