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Ellp Ara 2010 Final Combined LR
Ellp Ara 2010 Final Combined LR
Introduction.
D
uring the year the KPMG Europe LLP group comprised interests in the KPMG firms in Belgium, Russia and
the Commonwealth of Independent States (CIS), Germany, Luxembourg, the Netherlands, Spain, Switzerland,
Turkey and the UK (see note 27), and it is through those firms that client services are delivered. These
interests are referred to as ‘the legal group’. Where specified, figures quoted in the review sections of this
annual report may refer to proforma data for the entities covered by these interests, as if this structure had
been in place throughout 2009 and 2010, and ignoring the impact of exchange rate fluctuations. Further
KPMG operations and entities in these countries, whilst not controlled by KPMG Europe LLP within the
meaning of the relevant Accounting Standard, operate under the same principles as the legal group and these
entities together with the legal group are referred to as ‘ELLP firms’.
2 | KPMG Europe LLP | Annual Report 2010
John Griffith-Jones
Joint Chairman
After three years of rapid expansion,
Rolf Nonnenmacher the KPMG member firms in Europe are
Joint Chairman
working successfully across disciplines to
help our clients navigate an increasingly
complex world.
There is a strong unity of purpose Thriving in a complex world. In our view, business success is less
evident at every level of KPMG Europe The combined KPMG Europe LLP easy to achieve today. But we share a
LLP today. Our partners’ conference in now comprises interests in ELLP firms belief with many of our clients that
Frankfurt in June symbolised this well, in Germany, the UK, Switzerland, Spain, world-class companies can thrive in
giving us the opportunity to take stock the Netherlands, Belgium, Luxembourg, this new environment.
of the progress we have made building Turkey and six CIS countries, including
The new KPMG global brand position
truly collaborative working. Russia. In October 2010 we were
– ‘cutting through complexity’ – neatly
delighted that Norway and Saudi Arabia
Increasingly, as planned, it shines through summarises the vital role we are playing
agreed to join ELLP. The organisation
in the work we are doing for both our in helping client organisations find
will now span 16 countries, employing
global and our national market clients. efficient and effective ways to sustain
30,000 people.
their growth and prosperity in a
In an extremely tough economic
The key to our success lies in how we complex world.
environment, our clients have been
marshal our collective resources to meet
supported through difficult times by the A strategy for growth.
the fast changing needs of our clients.
significant resilience, imagination and During the year we undertook a
skill of our people. The results we have That is especially important at a time fundamental review of our strategy,
achieved across the ELLP firms, though of continuing short-term economic at global and regional level, to position
inevitably affected by the state of our uncertainty. ourselves for success in a rapidly changing
markets, are a tribute to their world. We have identified nine areas for
It is all the more crucial when our clients,
extraordinary talent. particular focus (see box above). These
like us, are adjusting to much deeper,
cover a range of industry sectors where
There is much more to be done, of course. permanent changes in the global economy.
we expect to see fundamental change,
But it gives us both great confidence to
We have emerged from the financial service areas where we anticipate
know that we have come so far, so quickly
crisis and the deepest downturn for 60 growing client needs, and geographic
and that we can see that our commitment
years into a new and less comfortable focus to recognise that China and the
to provide outstanding quality of service to
world. The economic and cultural Emerging markets will play an
our clients is more relentless than ever.
environment is more diverse and many increasingly pivotal role in the
of the old certainties we once depended global economy.
on have disappeared. Life is more
Our ELLP structure puts us in a strong
complex; but it is also immeasurably
position to implement these plans
more interesting.
vigorously and consistently.
4 | KPMG Europe LLP | Annual Report 2010
Quality. As auditors, we are better placed than We are confident that the ELLP firms,
The regulatory landscape is growing most to provide assurance on the wider connected across geographies and
more complex. National governments set of risks faced by a business – including sectors, can really make a difference to
have moved from understanding what those that are more forward-looking. We clients as they confront these challenges.
caused the financial crisis to working out are eager to take on that role.
Our new branding sends out a strong
how they can improve the system to
We are also strengthening our own message to them. It emphasises the
make sure it does not happen again.
Governance procedures. In response fact that – while our values as a business
A substantial amount of new regulation to recommendations from the ICAEW’s remain the same – the support we
is in prospect in financial services, and Audit Firm Governance Working Group provide to our clients is now sharper,
risk is rising to the top of board agendas we have set up a Public Interest more focused, more useful and
in almost every sector. Committee – our equivalent of a panel increasingly valuable.
of non-executive directors. Sir Steve
While the audit profession was certainly It also says that, despite the immediate
Robson, Tom De Swaan and Dr. Alfred
not the cause of the crisis, its future role economic challenges the world continues
Tacke have agreed to take on that role
is being hotly debated. Some have to face, we see many good reasons to
and we look forward to receiving their
openly questioned whether auditors be optimistic.
advice and guidance as we move our
bring enough scepticism to the role.
group forward. We would also like to Finally, we would like to thank all our
We think this is a reasonable challenge take this opportunity to thank those clients for the trust they place in us and
– and one that, ironically, only underlines Board members who have retired this all our talented people for their unstinting
the importance of the audit. We certainly year for their invaluable contribution passion in helping our clients excel.
agree that, to be of real value, an audit and to welcome our new members.
must be conducted with a sceptical and
Outlook.
questioning mind. Above all, the quality
We could not have faced a more
of our collective Audit practices and
challenging economic backdrop to the
our audit partners across ELLP firms
first three years since the formation
remains our single most important
of KPMG Europe LLP. We are both
strategic priority.
immensely proud of the work people John Griffith-Jones.
Much attention in Europe is focused across the group have done to enable us Joint Chairman
on the European Commission’s Green to make such significant progress in Rolf Nonnenmacher.
Paper on the future of auditing, led by this economic environment. Joint Chairman
the internal markets Commissioner,
2011 is likely to be another year of
Michel Barnier. We are particularly
gradual, and probably uneven, recovery
interested in one area of the debate –
for the global economy. Our clients will
whether there is a place for some form
need to continue to focus on improving
of wider risk reporting alongside, or in
their financial, risk and operating
addition to, the audit report.
processes to prepare themselves for
better times. Many of our clients will
be in a position to grow.
6 | KPMG Europe LLP | Annual Report 2010
Richard Bennison
Chief Operating Officer
2010 was a year of substantial achievement
for KPMG Europe LLP, and we now have
a base for significant future growth.
But securing that growth means we must
continue to prove, day in and day out, that
we are relevant to our clients’ needs – more
in touch with their challenges and better
equipped than anyone else to help
them succeed.
€ 4,065m
2010 revenues
We have experienced significant Our people are increasingly comfortable High performance in a volatile market.
expansion and huge change in the three working closely together across borders. The group’s reported revenue of €4,065
years since KPMG Europe LLP was There is a real readiness to share million was up 16% compared to the
formed. The benefits of the combined insights, experience and expertise for prior year, as new member firms in the
group continue to grow and the expansion the benefit of our clients. This type of Netherlands, CIS and Luxembourg joined
gives us even greater ability to invest to deep collaboration has now become the group. On a proforma basis, which
meet changing client needs. a way of life for us. treats all countries as having been in the
group throughout both years, revenues
We have begun to demonstrate how At a time when businesses are becoming
fell by 3% (to €4.3 billion).
powerful an impact we can have when more global, capital markets are
we mobilise our people, our resources converging, regulation is becoming more The marketplace for our clients and our
and our capabilities across borders to complex, and economic power is shifting firms remained uncertain in 2010. For
help our clients overcome the complex rapidly from west to east, our ability to many of our corporate clients it was a
challenges they face. make those connections – irrespective case of concentrating on the basics to
of national borders – sets us apart in the improve performance, efficiency and
The power of this co-working is most
marketplace and will increasingly cash and cost control. With our help,
clear in the excellent work we have done
underpin our collective growth. many are well placed to take advantage
for our global and national market clients,
of opportunities as the recovery
as I hope this report demonstrates. Throughout all these changes quality
gathers pace.
remains uppermost in our minds. Our
Our ability to draw on a rich diversity of
system of quality controls is designed to In financial services, unprecedented
skills and talent from across the ELLP
meet the expectations of our clients as regulatory change and the need to build
firms to put the right teams to work at
well as the rules and standards issued more resilient capital structures resulted
the right time explains why we won
by national regulators and professional in demand from banks, insurers and
some of our most exciting international
institutions. It encompasses: investment houses for our help. We
assignments during the year, including
responded quickly, bringing together
at ING and Norilsk Nickel. • leadership responsibility for quality
our specialists in key markets such as
• high ethical standards Germany, the UK, Spain, Luxembourg,
Switzerland and the Netherlands, to
• strong people management
guide and support our clients.
• rigorous procedures for acceptance
ENR was buoyant and we won major
and continuance of client relationships
assignments in this sector, such as guiding
and engagements
UC Rusal in its landmark US$2.2 billion
• processes which deliver effective Hong Kong listing (the first of its kind for
engagement performance; and a Russian business) and our continued
work with LUKOIL, Russia’s biggest
• monitoring activities.
oil company.
8 | KPMG Europe LLP | Annual Report 2010
and small. across three dimensions – our functional We now operate five functions – Audit,
expertise, our client markets and our Tax, Performance & Technology, Risk
country communities. & Compliance and Transactions &
Restructuring. Their achievements
Our functions. during the last year are covered in the
Our functions develop world class business review section of this
expertise to help clients meet existing annual report.
challenges and develop new propositions
to help them tackle emerging issues – Our client markets.
coping with sustainability concerns, for We manage the relationship with our
example, or dealing with new technologies firms’ largest clients at European
like cloud computing. industry sector level. This enables us
to develop deep understanding of these
Managing our functional experts on large complex organisations and provide
an ELLP wide basis has given clients them with sector insights and solutions
improved access to resources. These that meet their specific situations.
experts could be based in their own
country or in one of our ELLP centres Our sector communities allow us to pool
of excellence. an extensive range of experience across
different geographies and make this
available to all clients, whatever their
size and position in, usually, complex
supply chains.
Our countries. Our country operating model is flexible. • we made substantial progress
The third dimension of our operating It can accommodate our largest countries in integrating and off-shoring our
matrix is the country dimension and it and our smaller countries, such as the knowledge management and
continues to perform a vital role. Norwegian practice. Over the last year research capabilities; and
we continued to align our internal
Whilst many clients operate on a global operating models and in-country • in support functions we also continued
or cross-border basis, all of them are also processes to share the benefits of to roll out our shared services approach
deeply rooted in their local marketplaces consistency and best practice. in areas such as finance, technology
and communities. and infrastructure.
Benefitting from economies of scale.
Our country leadership teams ensure we Whilst the primary goal of the ELLP is to This year we will continue to use our
engage effectively with clients, inspire serve clients better, we also benefit from increased scale to benefit clients,
our staff and meet the expectations of economies of scale which allow us to achieve world class standards in our
the wide range of stakeholders we serve invest in new skills and services and to internal processes and deliver quality
– clients, local capital markets, regulators, improve our operational effectiveness. in everything that we do.
governments and the business and local Last year for example:
communities in which we operate.
• our integrated operating model not
only allowed us to set up two new
centres of excellence, but meant we
attracted new talent and teams to the
firm across multiple countries
12 | KPMG Europe LLP | Annual Report 2010
Audit. The external audit has an important role In response to the market challenges,
in helping to uphold trust and confidence we are more effectively leveraging
Our clients are dealing with in our capital markets. However, recent technology. Our biggest investment is
increasing complexity through events have questioned whether audits eAudIT – our new electronic audit file
changing accounting standards still satisfy the needs of the markets and that incorporates methodology, guidance
the broader public. Fair value accounting and industry knowledge. This will help
and changing regulation. They is under the microscope, and some, us deliver more efficient and effective
also face greater scrutiny than including the European Commission, are audits, whilst improving our client
ever before. To help them cope asking if the audit should cover a wider service by allowing us to focus on the
range of forward-looking risks. We issues that matter most to our clients.
we are providing a wider range welcome this debate and any measures
The deployment of eAudIT is
of assurance services – beyond that enhance audit quality.
progressing well. During the summer
the financial statement audit. We are responding to market needs period, in the region of 11,000 people
Separately, policy makers and through a wider range of assurance have been trained on the tool. This has
services. Our ‘Maximum Assurance’ required a mammoth effort by our
the general public are asking: suite covers a number of different Learning & Development department
can auditors do more to help assurance services including and investment in equipment and
prevent another financial crisis? sustainability reporting, financial infrastructure.
forecasts and internal control assurance
We welcome such dialogue to name a few. We have also provided
ELLP firms have a powerful presence
about enhancing the role, value in audit across our markets. For example
extended assurance service to clients
we audit 57% of DAX 30 companies,
and quality of the audit. For such as Rentokil in the UK. We are rolling
22% of the FTSE100, and 24% of
these services out across ELLP firms.
our part we are responding in Switzerland’s quoted companies. We are
terms of our technology, our Performance across the countries has also considered the audit market leader
been mixed. Overall, Audit revenue has in the important emerging market of
people, and the determination to decreased due to challenging market Russia. Our strong presence in each
build deeper and more trusted conditions. However, we have improved of our national markets is essential to
relationships with our clients, our margin through a combination of our success.
robust pricing and strict focus on cost.
investors and regulators. We intend to grow our Audit practice
We have also won some important new across ELLP firms in the year ahead,
clients including, ABN Amro in the with healthy growth in the more mature
Netherlands, EnBW – Germany’s third markets and higher growth in the more
largest electricity producer – and Capita emerging markets.
in the UK.
Joachim Schindler
Head of Audit
-6.6%*
* On a proforma basis for the entities in the legal Audit revenue
group at 30 September 2010 at constant
exchange rates. 2010: €1,787 million
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Tax. As governments reduce deficits built As businesses move into new markets,
up during the crisis, tax authorities are they must be sure they are meeting all
Our clients’ tax affairs are aggressively chasing corporate and their obligations in multiple jurisdictions.
growing ever more complex personal taxes. They are also introducing There is growing demand for co-ordinated
thanks to the economic crisis new ones, such as green taxes and, in global compliance services. We are
banking, levies on executive bonuses. leading the field in helping large global
and the effects of globalisation. Low tax regimes continue to compete clients cope with this challenge, winning
Increasingly they look to us to hard to attract businesses. The global eight major proposals including GSK
design tailor-made tax strategies tax landscape is hyper-competitive and and Syngenta.
changing fast, and clients need help
allowing them to be both compliant navigating it.
Large companies face significant
financial risks in managing their pension
and tax efficient, often across After a difficult year in 2009, our Tax schemes, particularly in the UK where
multiple jurisdictions. Providing practice benefitted from our investments many defined benefit schemes have
this support requires deep in client relationships and increased market large deficits. We have pioneered ways
activity with growth in many countries. for clients to manage their obligations
understanding of the challenges flexibly and have helped boards develop
each of them faces, so that we Tax globalisation is one of the nine
clear strategies for managing
priority areas for KPMG. We continue
precisely match their needs. fielding the right people to help clients
pension risk.
cope with increasing complexity in Indirect taxes, such as VAT, are rising
indirect tax, transfer pricing across Europe. Managing the flow of
and pensions. these transactional taxes through financial
reporting systems is a massive task. The
More aggressive tax collection has
higher these taxes rise, the greater the
meant more disputes between taxpayers
need for clients to plan and build robust
and authorities, and we are helping clients
reporting and payment systems.
successfully resolve such disputes
through mediation. Managing expatriate tax affairs for global
companies remains a growth area. Our
The German and UK tax authorities are
proprietary Short-term Business Traveller
targeting individual tax evasion. Many
software is helping companies schedule
new clients are seeking our help to
deployments and manage tax payments.
regularise their tax affairs.
The Tax practices in our Swiss, UK and
Too often companies re-engineer their
German firms are particularly active in
supply chains or change their operating
supporting family offices, a growing
model without considering tax
source of global investment capital.
efficiencies. We are working closely with
colleagues in Performance & Technology
to help clients build tax planning into
change programmes.
Ernst Gröbl
Head of Tax
-2.2%*
* On a proforma basis for the entities in the legal Tax revenue
group at 30 September 2010 at constant
exchange rates. 2010: €865 million
16 | KPMG Europe LLP | Annual Report 2010
Performance & Technology. Technology is playing an increasingly and director level. We also bought
important role in helping our clients – businesses including Analitica (the
Boosting business performance across all sectors – run their operations Hyperion planning specialists) and
almost inevitably involves more efficiently. Financial services clients further acquisitions are being assessed.
technology these days. The are facing huge change in both risk and
The formation of KPMG Europe LLP has
regulation and want to base their business
complexity, cost and upheaval decisions on the full range of financial and
helped us bring together our best teams
across the ELLP firms to win and deliver
involved in transforming business risk information. Corporate clients are
international cross-border engagements.
means our clients are looking shifting their attention from tactical
Teams from the Dutch and UK firms
cost-cutting to investing in long-term
for independent hands-on performance improvement which will
assisted ING in the preparing for the
separation of its global insurance
experience and insight to find accelerate growth, often involving the
business from the banking division.
and implement the solution that deployment of business intelligence and
The UK and Spanish firms helped
shared services.
exactly meets their needs. We Telefónica on their acquisition of Jahah,
In the public sector, the challenge is to their HR transformation in Europe, tax
have targeted Performance & deliver more value with less; protecting assistance on the acquisition of Vivo,
Technology as a priority growth front-line services while driving up and the reorganisation of their research
area so we can mobilise our productivity to cope with unprecedented & development activities in Spain.
cuts in funding.
expertise in cost optimisation, Other key assignments during the year
business intelligence and Demand for our services was strong last included providing business intelligence
year. Clients increasingly recognise our and technology advice on Lloyds TSB’s
tax-efficient transformation breadth and depth of experience in Galaxy internet banking programme which
to help clients meet their platforms such as SAP and Oracle and in will transform the way customers interact
business challenges. new areas such as cloud computing. They with the bank’s digital channels and will
also welcome our independent advice and deliver a compelling online experience.
our programme management skills – We also helped BP make savings through
combined capabilities which differentiate cost optimisation.
us from the big strategy houses and
We are helping AEGON, the insurance
systems integrators.
giant, prepare for changes brought about
This growing recognition is having a by Solvency II.
positive impact on our results. Our
Cross-function working brings additional
Performance & Technology function was
benefits to clients. Our Performance &
the fastest growing part of the business,
Technology and Tax practices, for instance,
achieving a 17% increase in revenue, with
are working increasingly closely to unlock
particularly strong performance in the
value by helping clients build efficient tax
Spanish, Russia and CIS, and UK firms.
planning into their business change
We are expanding our skills base. In the programmes.
UK firm, for example, we hired 425 new
people last year, including 39 at partner
Aidan Brennan
Head of Performance & Technology
+16.9%*
Performance &
* On a proforma basis for the entities in the legal Technology revenue
group at 30 September 2010 at constant
exchange rates. 2010: €457 million
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Risk & Compliance. Our clients now find themselves in a insurance, energy and natural resources,
significantly more complex regulatory communications and media, the public
Risk is a high priority item environment at a time of continuing sector and key industrial sectors.
on boardroom agendas. economic uncertainty. New regulations
Important assignments we worked
Across all sectors our clients and guidance on corporate governance
on during the year included large
have multiplied since the financial crisis
are confronted by a maze of struck. But banks are not alone in facing
transformational projects for clients in the
banking and insurance sector, especially
increasingly complex regulation. this challenge. Managing complex
with regard to their risk and finance
Their challenge is not only to financial, environmental and reputational
functions. Other key projects included the
risks is now a crucial part of life for
remain compliant, but to do so business leaders across all sectors.
implementation of effective internal control
systems and the enhancement of IT and
in an efficient and cost-effective Clients do not expect us to eliminate their data security for clients in the energy and
way. Our Risk & Compliance risk completely. Instead they want our natural resources sector, risk assessments
practice across the ELLP firms help to take control of it. By embedding for big clients in the communications
effective and efficient risk management sector and major forensic investigations
harnesses our skills and our and control processes, we are helping across many industries.
sector expertise to help clients boards to transform risk into business
Through the ELLP firms working closely
turn risk to business advantage. value and competitive advantage.
together across all of our markets, we
Our performance during the year reflects are well positioned to move our people
the growing importance of risk in the and our teams quickly to where they are
corporate landscape. The revenues of needed by our clients.
the legal group were slightly down for the
Technology is an integral part of our
year as a whole, reflecting the fragility of
services. We have developed market-
economic recovery in many countries.
leading skills in key areas including data
But we saw rapid pick up in activity in the
cleansing and analysis as well as
second half of the year, thanks largely to
information and data protection
a sharp increase in regulatory activity in
and security.
financial services where new rules such
as Basel III and Solvency II have begun Clients also look to us to anticipate and
to take shape. guide them through proposed changes
in regulation and governance procedures.
We expect to see this strong growth
We have now piloted centres of excellence
trend continuing and are anticipating
for financial services risk and regulatory as
further growth next year because of the
well as climate change and sustainability
heightened focus by our clients on risk
to keep clients abreast of changes and
and regulation.
to foster a three-way dialogue between
To achieve this growth we are them, ourselves and other stakeholders,
concentrating our resources where clients in particular regulators.
most need our help, prioritising banking,
Carsten Schiewe
Head of Risk & Compliance
-7.7%*
Risk & Compliance
* On a proforma basis for the entities in the legal revenue
group at 30 September 2010 at constant
exchange rates. 2010: €455 million
18 | KPMG Europe LLP | Annual Report 2010
Transactions & Restructuring. World-class companies and sector Revenue for Transactions &
leaders were in a stronger position to Restructuring across the legal group
With economic recovery make acquisitions, seeing this as an ideal for the year came in at €716 million, a
slow and uneven in 2010, time to bolster their competitive position satisfactory result given the difficult
our clients found themselves through deals. They were able to raise market conditions, partly due to a very
the necessary capital with relative ease. strong performance in Restructuring.
operating in a nervous market. But smaller businesses were not so well We maintained our position in the
Though M&A did pick up, many placed, leading to a polarisation of the Thomson/Reuters Financial Advisors
businesses continued to focus capital markets. and Accountants league tables, being
ranked No.1 again in 2010. Our landmark
on restructuring their operations Restructuring work increasingly called
assignments for 2010 included:
for M&A advice as renegotiation of
and paying off debt to prepare borrowings often comes with a • advising the creditors of Dubai World,
for sustainable long-term requirement to dispose of under- the first major restructuring in the
growth. In these difficult times, performing assets. By moving people Middle East.
around our teams, we provided clients
businesses have needed more with the right skills and our people with
• advice on the US$2.2 billion initial
trusted relationships, deep sector global offering of UC RUSAL shares on
broader experience.
the Stock Exchange of Hong Kong, for
insights and ‘through the cycle’ Private equity clients – once happy to plan a consortium of international lenders.
capabilities, which our combined acquisitions on cash flow projections –
• the First Quench Retailing
Transactions & Restructuring asked us to take a much more sceptical
administration appointment; and
view on deals to ensure that proposed
teams were able to provide. transactions were soundly based and • advising Bridgepoint on the £955
sustainable; a likely long-term trend. million sale of Pets at Home, the
largest secondary buyout since 2008.
The new global growth strategy for KPMG
provides us with exciting opportunities
to develop our client base in key sectors
such as financial services and energy
and natural resources.
Innovation is essential in difficult
markets. Examples include the
development of our portfolio solutions
group, which specialises in advising
financial institutions on selling or
improving their assets.
Simon Collins
Head of Transactions & Restructuring
-4.3%*
Transactions &
* On a proforma basis for the entities in the legal Restructuring revenue
group at 30 September 2010 at constant
exchange rates. 2010: €716 million
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Markets – Industries. In an uncertain world, it can be hard for The financial services sector is very
business leaders to plan future strategy active, largely due to the seismic
An uncertain world demands with full confidence. changes promised in banking regulation.
that we provide our clients with There has also been a pick-up in private
Timing important investment decisions is
a different level of support and equity, which became virtually dormant
essential, as is choosing the right moment
in 2009 as sources of funding dried up.
advice. We are enhancing the to make an acquisition or to push through
a business change programme. In the wider corporate sector there is still
way we work to achieve this a great deal of retrenchment, although
requirement. At times like this, what clients value
our national market clients – small and
most is having a second pair of eyes to
medium-sized enterprises – have proved
challenge them on the best approach to
more resilient to the economic crisis than
the issues they face. They also value
their larger peers. Public sector clients,
the chance to hold an open and honest
meanwhile, face severe problems in
conversation with us. We act as a
countries where spending is being cut to
sounding board against which they
tackle deficits. So we remain watchful of
can test their own thinking.
the economic indicators and determinedly
So our job is to bring together our wide forward-looking on behalf of our clients,
experience of working with companies advising them and helping them respond
across sectors and markets and to make pro-actively to emerging trends
this knowledge available to clients in a way and opportunities.
that dovetails with their strategic needs.
Changing priorities.
Our role is to clear some of the fog from We have found that most clients have
the landscape and to help our clients plot three major challenges in common:
a path forward; one dimension of cutting
• making sure they stay stable and
through complexity.
healthy now.
The market challenge.
• working out how they can take
Economic recovery has come back to
advantage of growth opportunities
our markets unevenly. Some continue to
in the next 12 to 18 months; and
struggle with low growth and continuing
disarray in real estate markets. Germany • identifying where long-term
has bounced back more strongly than growth opportunities might lie; how
most on the back of an export-led recovery to exploit changes in technology; how
in unaffected markets, particularly China. relationships with their customers are
But clients remain cautious and are likely to evolve; and what impact the
holding back on discretionary spending sustainability agenda will have on
and transactions. their businesses.
Jeremy Anderson
Head of Markets and Financial Services
20 | KPMG Europe LLP | Annual Report 2010
Achieving Operational
Excellence.
Barclays Group has identified Peter Estlin asked us to work with his The review identified gross potential
Finance Management Team to help design annualised savings in excess of 25%,
‘Operational Excellence’ as one and implement Lean within this function with a 30% reduction in total processing
of its strategic priorities. To begin using Lean Organisation review, Lean time, freeing up capacity for the function
that group-wide journey Peter Process Review and Lean training. to develop higher value services for
customers. There were some important
Estlin, now CFO for Barclays A team led by Denis Reynolds, Partner
intangible benefits too, including offering
global retail bank led a programme from Financial Services in the UK firm
teams working on the process a better
worked with John Clarke, MD Barclays
to pilot and then implement Group Centre Finance, who project
work/life balance.
‘Lean’, a management practice managed the initiative. We helped Two thirds of people working in Group
that considers the expenditure introduce Lean techniques in key functions Finance participated in one or more
and processes and created a modular training modules, either through formal
of resources to eliminate waste just-in-time training programme to transfer Lean Training or workshop attendance.
and deliver customer value and and embed Lean skills within the This has helped to embed Lean capability
service, in one key function, various teams. in these teams, supporting the Function’s
continuous improvement towards overall
Group Finance. Our first task was to agree the Group
Operational Excellence.
Finance Cost Base and to help the team
select the right processes for the Lean Commenting on our work, Peter Estlin said:
Review through their own effectiveness “KPMG translated the theory into tangible
and efficiency self assessment process. and sustainable benefits, setting the
Our knowledge of Barclays and of the benchmark for other functions within
wider banking sector allowed us to Barclays to use Lean to support their
understand the challenges they would face journey towards Operational Excellence”.
and to work with them to identify areas
where significant process improvement
and cost savings might be achieved.
Consumer & Industrial Consumer goods manufacturers and • Just as clients are looking to different
pharmaceutical companies are working sectors to learn and share ideas, we
Markets. together on healthy food products. are encouraging our sector experts to
Market snapshot: Business Asian investors are keen to buy Western combine their specialist knowledge
transformation is at the top of the agenda European brands to obtain access to with a broad understanding of how
for clients across all the sectors we cover. the established markets, recognising companies across sectors are
As economic recovery gradually picks that brand reputation is essential. But adapting to change. Clients are looking
up pace, companies are looking at how increasingly we expect them to invest in towards us to provide a broad range of
best to boost their efficiency. Whilst production capacity for these brands at professional services to support them.
cost cutting remains a key issue, now home rather than in Europe. Other sectors
companies are increasingly looking at • W
e have developed a cross-sector
are already shifting manufacturing. The
how they can operate more constructively Management Agenda which enables us
chemical industry has closed huge
to deal with overcapacity in Western to make proposals and put forward
amounts of European capacity in recent
Europe and uneven demand across their ideas which meet clients’
years, investing in the Middle East instead.
global markets. Different sectors are at individual needs.
Raw material prices are likely to rise
different stages in the recovery cycle. sharply in the near future – posing a • Our sector-wide Management Round
The common thread is the need for significant challenge for companies. As Table events continue to attract senior
them all to align their operating models globalisation matures, we believe there executives, providing them with a
to survive and thrive in an increasingly will be far less differentiation between forum to share experience.
complex global environment. emerging, developing and
• To keep clients up to date with key
Issues ahead: Convergence between saturated markets.
emerging trends, we regularly publish
the sectors is getting more important How we are responding: studies and white papers on
as companies look to build businesses in • Services which specifically cater to www.kpmg.eu
new sectors to meet demand for new helping clients survive in turbulent
products and services. Energy providers, • Key assignments during the year
times have been in great demand.
for instance, are starting to enter the included helping a global
With each client at different stages
automotive industry by offering mobility conglomerate build regional clusters
in the economic cycle, this demand
services such as customer energy to strengthen its infrastructure and
remains strong and will continue in
contracts for e-cars, including the car itself. governance. We supported an Indian
key service areas, particularly
company to make acquisitions and
performance, risk management
helped a global pharmaceutical
and technology.
company optimise its supply chain.
• As patterns of investment across
Europe change, our strong presence
in key developing markets such as the
CIS and Turkey means we are well
placed to help the firms’ clients grow.
• With Norway and Saudi Arabia joining
Proforma Revenues by Consumer & Industrial Markets €1,469m KPMG Europe LLP means we will be
market industry 2010 Financial Services €1,259m in an even better position to help
Infrastructure, Government clients in the ENR and chemicals
& Healthcare €971m sectors to plan their growth strategies.
Information, Communications
& Entertainment €451m
Private Equity €130m
KPMG Europe LLP | �����������������������
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Financial Services. Remuneration is likely to remain at the • Our integrated approach is helping
Market snapshot: The financial crisis top of the agenda. But more far-reaching us better understand the changing
has unleashed a wave of proposed new changes may be forced on banks. The needs of our clients and respond
regulations, the full impact of which will UK Independent Banking Commission is effectively with tailored, multi-
take some years to be felt. Dealing set to make recommendations on the disciplinary solutions.
with these and with unprecedented future structure of banks. Should they
• Landmark assignments (involving
government intervention has now be broken up to foster competition?
cross-border teams) during the
become a core part of strategy for banks, Should retail and investment banking
year included helping ING in the
insurers and investment houses alike. be separated? Planning for the future in
preparation of the separation of its
The last year has also been about such uncertain times is immensely
global insurance business from the
rebuilding confidence and managing difficult. Managing risk has become
banking division, and helping AEGON,
scarce resources to rebuild depleted much more complex; responding to
the insurance giant, prepare for the
balance sheets. Given all that, recovery regulators’ demands for greater
changes required by Solvency II.
has come back to this sector more transparency requires new thinking,
strongly than many dared imagine in new technology and, in some cases, • For the third year running we won
2008 when global banking came very significant business transformation. Euromoney’s Best Islamic Assurance
close to meltdown. and Advisory Services Awards.
How we are responding:
Issues ahead: Many institutions are • Financial services is a key priority • We continue to play a lead role in
returning quickly to profit, but few growth area for KPMG Europe LLP shaping the debate over the future
expect to go back to business as usual. and we are investing in new resources of financial regulation. We are actively
Uncertainty will continue to be the order across all our service areas. KPMG supporting moves to give auditors
of the day and our clients increasingly internationally is developing London as a wider remit to provide greater
need our help to make sense of this a global centre of excellence for Risk assurance to investors, a key theme
fast-changing world. Key issues for banks and Regulation in Financial Services, in the European Commission’s
and insurers will be the implementation with a focus on bringing the most skilled investigation into the future of
of new capital requirements proposed of our people, across disciplines, to auditing led by Michel Barnier.
under the Basel III and Solvency II work together to resolve client issues.
initiatives. For investment houses, the • This reflects our determination to
European Commission’s UCITS IV provide integrated expertise – across
regulations come into effect in 2011. disciplines and geographies – to match
the demand from our clients for a
broad range of specialist advice
and support.
24 | KPMG Europe LLP | Annual Report 2010
Information, Communications Issues ahead: Each of the ICE sectors How we are responding:
& Entertainment (ICE). is going through a process of evolution, • In an environment where competition
presenting clients with challenges and for market share drove down prices,
Market snapshot: Our ICE clients saw
opportunities as they adapt to the we engaged heavily in helping our
the beginnings of a recovering market in
changing world. For example, with clients sustain and grow margin. Our
2010, with consumer spending on items
smartphones and data devices now Intellectual Property team helped
such as smartphones, holidays and TV
established in the market, the challenge recover substantial sums for our clients
subscriptions holding up well. Business
for communications companies will be in uncollected revenues, our Operational
spending began to return with increases
to increase revenues and margins from Performance team put new centralised
in business travel and advertising helping
data. For media companies the service facilities in place, yielding
to foster growth in the telecommunication
continued diversification of advertising sustainable cost savings, and our
and media sectors. Demand in the
media and the migration of spend from working capital team brought focus
technology sector was enhanced as
traditional media to online presents an and discipline to managing cashflows.
customers used IT to respond to
ongoing challenge of monetising online
changes in regulation and address their • It was a busy year for our Transactions
services. Technology companies have a
cost structures, although this was partly team where our industry insights
key role to play in helping businesses
offset by uncertainties over public sector helped our clients enhance value both
become more efficient and meet
spending. As growth returned, clients on acquisitions and on bringing assets
regulatory requirements. New devices
shifted their focus from cutting budgets to a more buoyant market.
such as the iPad and Kindle, and the
to implementing more sustainable cost
related growth in the ‘apps’ (applications) • A 20-strong team, from across KPMG
structures and efficiencies, through
market, demonstrates continuing Europe LLP helped Sony design a new
technology, shared servicing, offshoring,
consumer demand for new technologies. finance operating model to support local
outsourcing and centralisation. Many
sales and marketing companies across
successful businesses also concentrated
Europe using an integrated service
on revenue generation by capturing
delivery model, comprising internal
untapped payments, billing for additional
resources and a third party outsource
services or identifying new revenue
provider – read more on page 34.
streams. There was a high level of
transaction activity early in the year,
and we saw a number of Initial Public
Offerings, particularly in the
telecommunication and leisure sectors.
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Government and
healthcare are priority
growth areas for KPMG
firms globally and we
are well placed, within
Europe LLP, to help clients
find more efficient ways
to deliver services at a time
of shrinking spending.
Infrastructure, Government Issues ahead: Deficit reduction will • The KPMG Public Governance
& Healthcare. be the big theme for our clients as Institute was founded in Germany in
governments look to cut spending while 2005 to promote the highest standards
Market snapshot: The focus for our
continuing to safeguard the economic of efficient public administration. KPMG
clients has switched from surviving
recovery. In this complex environment has now launched similar institutes in
through the financial crisis to dealing
we expect our clients to look for the UK, the US and in South Africa
with reduced public sector spending as
increasing levels of support and advice in giving clients in those countries far
governments try to cut national debts.
identifying innovative ways to reorganise greater value and insight.
Our government sector practice built a
their budgets and boost efficiency.
strong reputation during the crisis and • We worked on Europe’s biggest
Performance improvement, cost-
we continue to work closely with transaction in the transport sector,
optimisation and asset disposals will
institutions responsible for stimulus and Deutsche Bahn’s £1.5 billion takeover
continue to be major priorities for them.
rescue packages. Government and of Arriva.
healthcare are priority growth areas for How we are responding:
• We are advising the new UK coalition
KPMG firms globally and we are well • We are advising the Dutch Police force
government on welfare reform and on
placed, within Europe LLP, to help clients on setting up shared service centres
defence acquisition.
find more efficient ways to deliver to manage their finance and human
services at a time of shrinking spending. resources functions. • Audit remains a strong part of our
Across our markets greater collaboration business with both public and private
• We are acting as the official trustee for
between the public and private sectors sector clients. Major wins during the
State Guarantees for one of Germany’s
is a growing theme. year included the business services
federal states. This is our first
group, Capita.
assignment in a market previously
dominated by one of our competitors • We are providing strategic advice to
and reflects our growing reputation, the Walloon Region and the French
following the financial crisis, in Community in Belgium as well as
advising governments. supporting its treasury and debt-
management functions.
26 | KPMG Europe LLP | Annual Report 2010
Huge opportunity
in healthcare.
Q: And yet all healthcare systems are Q: We are in an age of austerity. How Our five global healthcare
different – some public, some private. can we help health services do more
propositions
How can you have an impact in such a with less money?
diverse market? A: The scale of the challenge facing our 1 Board Grip – good governance, good
A: Yes it is true that healthcare is health clients now means that approaches information, the right internal structures,
primarily organised along the lines of often need to be taken at the local a well run organisation.
national geographies. But all of the trends system level, rather than organisation 2 Quality and Margin Management –
in healthcare are similar. We are finding by organisation. KPMG has helped reducing operational cost while
increasing convergence. neighbouring healthcare purchasers and improving quality.
providers to work together to redesign
The US is seen as a largely private 3 Electronic Health – using telemedicine
services, so that increasing demands can
healthcare market, but in the next couple and technology to improve care and
be accommodated without increase in
of years funding for healthcare from the record keeping.
funding. Our deep experience in
government is likely to increase. And while
transactions means we can help to 4 Organisational Architecture – public
the UK’s national health service is largely a
scope and implement the changes in and private provision, mergers, joint-
public system, increasingly we are seeing
organisational architecture that are often ventures, Private Finance Initiative
a public/private mix. So we are starting to
needed as systems evolve. Within projects, Public and Private Partnerships.
see many more similarities in the way we
individual organisations we also have years
look at problems and solutions. 5 Care System Redesign – moving care
of experience in helping clients refine their
Q: What is KPMG doing to address strategies and drive out inefficiency from from hospitals to lower cost facilities in
these challenges? internal processes. With many clients primary and community settings.
A: Within KPMG Europe LLP, the UK firm under huge budgetary pressure, we
has the largest public and private sector are increasingly undertaking work on a
health practice. We are steeped in payment by results basis, in order to align
experience and have a track record of our performance with clients’ objectives.
providing innovative solutions.
Jeremy Anderson
Head of Markets and
Financial Services
Dieter Becker
Head of Consumer
& Industrial Markets
Ulrich Maas
Head of Infrastructure,
Government
& Healthcare
Graeme Ross
Head of Information,
Communications &
Entertainment
Rustom Kharegat
Head of Private Equity
30 | KPMG Europe LLP | UK Annual Report 2010
National Markets.
National markets.
Erik Clinck
Head of Markets, Belgium
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Sustaining efficiency.
Sony Corporation launched a Sony Corporation launched a world- We helped Sony simplify processes,
wide review to simplify, standardise and reviewed the likely return on investment of
world-wide review to simplify, increase the speed of its operations. the project, which included 28 efficiency
standardise and increase the As part of this review Sony Europe measures, and helped identify and
speed of its operations. launched ‘Project RISE’, an end-to-end manage risks, this allowed Sony Europe
re-evaluation of operations including to deliver significant efficiency savings
procurement, supply chain management and boost operational performance.
and distribution, sales and marketing, The work was carried out over a
finance and accounting, Information 16-month period by a team of experts
Systems and HR. from our Performance & Technology and
A 20-strong team from across ELLP Tax teams, with local country tax and
firms helped design a new finance statutory accounting support provided by
operating model to support local sales a number of our ELLP firms. One of the
and marketing companies across Europe key challenges was to create an integrated
using an integrated service delivery team that could immediately win the
model, comprising internal resources confidence of the client by demonstrating
and a third party outsource provider. a really deep knowledge of Sony and the
issues it faces.
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National markets.
continued.
The Netherlands. • As a condition of winning state aid, Russia and CIS.
The Dutch economy is emerging steadily ING, with our help, developed a The Commonwealth of Independent
but slowly from recession. restructuring plan for the European States (CIS) fell steeply into recession
Commission, involving separation of in 2008. With high oil prices, stable
Many financial sector groups – such as
its banking and insurance divisions. exchange rates, and strong financial
ABN Amro, AEGON and ING – either
We are working with them extensively reserves, markets have recovered
Became state-owned or received state
to help implement this, involving quickly. Now the focus is on cost
aid. Corporate clients, like their peers
KPMG people in 20 countries across reduction, performance improvement
across Europe, were heavily affected
the world. We are also helping and better risk management.
by the downturn.
evaluate the best options for exiting
Reserves of energy and natural
Clients are emerging from recession into state ownership.
resources provide a strong backbone
a new environment. The priority for our
• A landmark assignment was to help to the economy, but important parts
financial services clients is regulation and
AEGON prepare for the changes being remain underdeveloped and ripe
governance, with growing public and
brought about the new Solvency II for investment.
customer demand for them to be more
regulations.
transparent. Those banks fully or partly A further challenge is the modernisation
owned by the state need to develop • In the corporate sector we became of industry and infrastructure, with
strategies to regain their independence. auditors for Mediq. We undertook a Governments determined to diversify
critical project helping Refresco their economies by investing in high
Transforming performance is the
develop their internal organisation technology, agriculture and the
major theme for our corporate clients.
prior to an Initial Public Offering. financial sector.
Fundamental reforms of the public
• We are bringing new expertise into KPMG in Russia and CIS – highlights:
sector – in areas such as healthcare –
the firm to help us address our clients’ • The Russia and CIS firm has a market
are creating new opportunities for us
biggest challenges. We were delighted leading position with 15 offices across
to help clients.
to hire Wouter Bos, the former Deputy Russia, Armenia, Georgia, Kazakhstan,
KPMG in the Netherlands – highlights: Prime Minister and Finance Minster, to Kyrgyzstan and the Ukraine.
• We were appointed as auditors to ABN head our healthcare and government
• During the year we supported UC
Amro, reinforcing our reputation as advisory practice.
RUSAL become the first Russian
leading professional services providers
• As the economy recovers we company to achieve a listing on the
to the financial services industry.
anticipate growth will return in our Hong Kong stock exchange (US$2.2
Audit practice and expect our Advisory billion IPO). We also won the audit
services to expand rapidly. We will be of Norilsk Nickel.
working closely with our colleagues
across the Benelux countries to utilize
our complementary skills.
National markets
continued
• We are expanding our range of Spain. • Intense competition caused pricing
services to clients, building on a strong There were some signs of improvement pressures for our Audit practice, but
position in Audit. Our Tax practice is by the end of the year, but economic we continued to win clients and
growing strongly; we expect demand growth is not forecast to return until provided new assurance services to
for Performance & Technology services 2011. Access to credit for many companies the public sector. We were appointed
to grow. There is strong demand for remains restricted, placing a continued auditors to the international security
Risk & Compliance services, particularly focus on cost reduction, cash conservation, systems company, Prosegur Group.
from banks and insurance companies. efficiency and restructuring. Regulatory
• We invested heavily in on our Tax and
reforms made governance and risk
• The energy and mining sectors Performance & Technology practices
management a board agenda item,
remain central to the economy as and reinforced our sector expertise in
particularly in banking, where the awaited
operators expand abroad and attract energy, telecommunications, financial
restructuring of the savings banks began.
international capital and expertise to services and public sector.
exploit untapped reserves locally. Unemployment remains a pressing
• Our Tax practice grew strongly
This year we established a centre issue. The economy must reduce its
supported by increased activity in
of excellence for energy and natural overdependence on real estate, so
financial services, M&A, international
resources in Moscow, reinforcing boosting efficiency and competitiveness
corporate tax advice, transfer pricing
our team with internal promotions are key priorities.
and indirect tax advice. We were
and external appointments.
KPMG in Spain – highlights: named Energy Advisory Firm of
• We are building our government team • Financial risk management advice, the Year in Spain by Corporate
to work with public sector clients and part of our Risk & Compliance International Magazine.
state owned companies. services, and Transaction Services &
• We grew in telecommunications
Restructuring were all in high demand.
Unlocking a market of 250 million and Energy, where we were awarded
We were named Financial Advisory firm
consumers in the CIS is a major important assignments with Gas
of the year in Spain by Intercontinental
opportunity for international companies, Natural Fenosa and Iberdrola and
Finance Magazine. Published rankings
with significant potential demand for advised on several key gas network
showed we were the leading financial
everything from cars to food and durable transactions with infrastructure funds.
adviser by number of transactions
goods. We are driving a major project to
successfully completed. • Private equity business remained
boost foreign direct investment, working
depressed, but there are now signs of
with 12 large Russian regions and up to • We became a Registered Adviser in
a possible pick up of activity in 2011.
60 foreign companies. Our report on the Spain’s new Alternative Investment
major enablers and barriers is being Market and have already advised Our investment in new skills allowed
published at the end of 2010. companies on how they can use this us to provide the right support for our
market to raise new capital. clients as the economic cycle changed,
and we continue this investment.
Hubert Achermann
Senior Partner and
Head of Markets, Switzerland
38 | KPMG Europe LLP | Annual Report 2010
National markets
continued
People.
Talented people are highly Our success in recent years has been During the year more than 700 people
underpinned by an important but simple worked on secondments in other
mobile, so our search for the principle: by attracting and retaining the countries or completed international
best people must increasingly very best people we will win valuable transfers and we are doing all we can to
be global. By offering inspiring and exciting work with high calibre make sure more of our people have the
international clients. We have continued right support to live and work
international career opportunities to develop our approach to recruitment, in new locations.
we will continue to recruit and diversity, career development, reward
We plan to launch a number of
retain people our clients really and remuneration in the belief that being
programmes across the ELLP firms to
the best firm for our clients and the best
want to work with. firm for our people go absolutely hand in
support our new joiners who are willing
to be mobile from the start of their career.
hand. This is particularly true at a time
when the competition for talented We are fully committed to recruiting the
people is as intense as it has ever been. very best talent. For more senior
It is also vital as our own ambitious appointments, we are now searching
growth plans for the next three years across the world, particularly as we build
envisage increasing our headcount of key parts of the business such as
client-facing staff within ELLP firms Performance & Technology and our
by 9,500. financial services, energy and natural
resources and healthcare practices.
Our priority during the year was,
therefore, to widen our search for the To develop outstanding talent within our
best international talent, to strengthen businesses – and as a response to the
our approach to recruitment and to Fair Access to the Professions report
continue developing a high performance – within our Audit practice we have
culture within which our people, at all launched a new school leavers’
levels, can excel in serving our clients. programme in the UK.
Recruitment – a global approach.
The talented people we wish to recruit
are increasingly willing to move between
countries. Individuals have become far
more mobile and intent upon widening
their level of professional experience by
seeking opportunities to work worldwide.
One of the key benefits of being part of
KPMG Europe LLP is an ability to offer
real international career opportunities to
people from their very earliest days.
Rachel Campbell
Head of People
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People.
continued.
We want to develop
forward-thinking people
with a global mindset
and an energy and
passion for helping
clients overcome
the challenges
they face.
44 | KPMG Europe LLP | Annual Report 2010
We want our Corporate Social Corporate Social Responsibility (CSR) within which ELLP firms operate within
is integral to our values and defines the the next year. Preparatory work has
Responsibility programme to way we go about our business. It is started on this report (under a stakeholder
have a real and lasting impact. important not only as a responsibility to engagement programme) and we have
Increasingly that means putting the communities in which we operate, commenced a review of the potential
but is increasingly vital to the long-term indicators that are relevant to our
our skills to work in smarter and commercial success of KPMG national businesses.
more sustainable ways. Europe LLP.
Bright.
Our people, upon whom we depend, Our newly launched Bright programme
have high expectations of us and want to is a case in point. It encourages our
work for a socially responsible organisation. people to come up with great ideas to
Furthermore, our clients and suppliers, use their skills to help us work better
as well as the community groups we with our community partners to tackle
€15.3 m
want to work with, demand evidence that local challenges and work with our
we not only say the right things about international partners in developing
illion CSR, but also practice what we preach. countries to support the Millennium
Development Goals.
In the last three years we have built a
community investment strong CSR programme across ELLP We have set challenges for our people
firms, concentrating on three key areas – which reflect the needs in our local
voluntary work, charitable donations and communities. Participants who come up
6,583
protecting the environment. We have with the brightest ideas are supported by
exciting programmes running in each of us to implement their winning idea and
the 16 countries within which ELLP firms get the chance to work with our
operate, and we are making sure that our international community partners. For
volunteers people can get involved wherever they example, some are supporting Fairtrade
live and work. Africa by providing business training to
producers in Kenya and Tanzania. Indeed,
58,526
We now want to build on these strong
we are building on this important
foundations and play a lead role in
relationship with Fairtrade producers in
helping business and society overcome
all sorts of ways which involves working
the huge sustainability challenges of the
with growers in the villages through to
voluntary hours future. We can achieve the aims of our
CSR programme most effectively when
using Fairtrade products in our canteens
and client dining rooms.
we mobilise our business skills in
innovative ways. For this reason we are: Our skills in the community.
Our community programmes continue
• looking for more pro-bono
to centre on four main areas – education,
opportunities where we can contribute
employability, enterprise and the
our own skills, for instance working
environment – and these are the focus
together with our community partners
for both our volunteering efforts and
to help them achieve their core
cash donations. During the year our cash
objectives; and
and in-kind donations totalled a record
• working more closely than ever with €15.3 million.
clients and suppliers to reduce the
More than 6,000 people across ELLP
impact which our collective businesses
firms contributed some 59,000 hours of
have on the environment.
time, which is another record investment
We are one of only 10 international We are committed to producing a and reflected a sharp increase in pro-
businesses to be awarded Business sustainability report across the countries bono activity.
in the Community’s prestigious
Platinum Plus award. This measures
our progress in addressing
sustainability issues and our leading
knowledge and understanding of
the challenges we face.
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Sustainability and
climate change.
Having steered 193 countries Q: Why did you join KPMG from the
UN at this time?
through the climate change A: Because I think the international
negotiations in Copenhagen, processes on climate change have
Yvo de Boer has left his role entered a new era. People can argue
about whether Copenhagen was a
as Executive Secretary of the success or a failure. But the conference
UN’s Framework Convention on has dramatically changed the international
Climate Change and now leads landscape. The complex challenge now
is implementation. We are confronted
our work on sustainability. Here with government policies that are
he discusses the challenges that relatively unclear, in many instances,
lie ahead, arguing that business but wide ranging in scope.
can and should be an important Q: Are you convinced business
agent for change. can be an agent for change in this
whole process?
A: Yes – if only because businesses
recognise that the environment around
them is changing, in the ecological,
social and economic sense. Businesses
are looking at risks and opportunities in
a more comprehensive way. And that is
where KPMG firms have an important
role to play. We can help businesses
understand the changing environment
and its impact on them.
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Q: Has the financial crisis pushed Q: How well are KPMG firms doing in Q: Are developing economies better
sustainability down the political and helping clients with this challenge? placed to make progress?
corporate agenda? A: Sustainability and climate change is A: Their overriding concern is economic
A: I divide the sustainability challenge not new to KPMG – we’ve been working growth and poverty eradication and they
into two categories – issues around on different aspects of this topic for a understand that simply following the
today’s bottom line and those around long time. The challenge now is to link example of industrialised countries may
tomorrow’s bottom line. those areas of expertise and to put our not be the ideal way to go. It is physically
huge experience in audit, tax and impossible to continue growing China
On today’s bottom line there are huge
advisory in the context of the new by 8% or 9% a year using the current
opportunities for businesses to save
challenges we face. energy and industry model.
energy and to use materials more
prudently, which is ultimately an Q: What do we need from politicians? To put it another way, I’m not so
opportunity for cost optimisation. On A: An international architecture to help concerned about the 1.5 billion people
tomorrow’s bottom line that’s where you countries and companies make progress. like you and me who have a pretty
need to understand how climate policies, Many businesses are calling for decent lifestyle which perhaps needs
energy prices and consumer demand are something that is long, loud and legal. to be a little more sustainable. What
going to change over time and how you By long they mean a long-term policy concerns me more is the 5.5 billion people
need to reposition your services. That’s perspective. By loud they mean currently living on less than $10 a day
where businesses need support. something that expresses a clear and who are keen to have a better lifestyle,
strong ambition and by legal they mean preferably closer to yours or mine. Within
an international context that has current constraints that is physically
credibility and will be abided by. That is impossible to achieve, so we need to
an important signal to governments. start focusing on green growth.
48 | KPMG Europe LLP | Annual Report 2010
Corporate governance.
We are totally committed to Our group applies high standards of The Board.
corporate governance which mirrors The Board of KPMG Europe LLP (‘the
ensuring that we continue to those standards adopted by our major Board’) is responsible for ensuring that
operate at the forefront of good clients. Our practices are adapted slightly the group is run in the interests of the
governance. In that respect, to reflect the fact that the firm is wholly members as a whole and in a manner
owned by its members who work within which is in keeping with the standing
KPMG Europe LLP has fully the organisation. and reputation of the firm. The Board’s
adopted the UK ICAEW Audit responsibilities include setting the
Our governance structure is laid
Firm Governance Code across down in both our Limited Liability
group’s strategy, overseeing its
implementation, considering overall
the ELLP group even though Partnership Agreement and the KPMG
financial performance and solvency,
this is only strictly obligatory Europe LLP Governance Provisions. The
ensuring the maintenance of a sound
following sections summarise the roles
for UK firms. and responsibilities of the officers and
approach to risk management and internal
control and reviewing the effectiveness
governance committees as defined by
of such a policy. Details of the Board
these provisions. Further details of the
members, including their background,
governance arrangements operating
the term of office that they have served
within KPMG Europe LLP are set out in
on the Board and the other governance
the 2010 KPMG Europe LLP Transparency
committees on which they serve are in
Report available online at www.kpmg.
the ELLP Transparency Report.
eu/annualreport.
During the year, the Board comprised
The Joint Chairmen.
the two Joint Chairmen, eight additional
KPMG Europe LLP is led by its Joint
officers (being the Chief Operating
Chairmen, Rolf Nonnenmacher and
Officer, and the Heads of Audit, Tax,
John Griffith-Jones. The Joint Chairmen
Advisory*, Markets, Finance &
are appointed by the Board but the
Infrastructure, People and Quality & Risk),
appointment must be ratified by an
and a number of KPMG partners who
ordinary resolution of the partnership.
held non-executive roles for the group.
They have both served three years of
As at 30 September 2010, there were a
their initial term of office of five years.
total of 26 partners on the ELLP Board.
The Joint Chairmen are responsible for
The officer roles are appointed by the
leading the group. One of the Joint
Board following the recommendations of
Chairmen currently chairs the Board and the
the Joint Chairmen and are elected for a
other chairs the Executive Committee.
term of three years, renewable for such a
Underneath the Joint Chairmen are six period as the Board sees fit. The non-
main bodies that deal with key aspects executive members are recommended
of governance within the group. for appointment by the Nominations
Committee in consultation with the Joint
These are: Chairmen and are also elected for a term
• the Board of three years and, if required, can serve
for two terms (or in the case of the
• the Executive Committee non-executive member being a senior
Experience KPMG online
partner of one of our operating firms they
www.kpmg.eu/annualreport • the Audit Committee may be appointed for the period that
• the Quality & Risk Committee (formerly they hold that office).
the Risk & Compliance Committee) The Board met nine times in the year to
30 September 2010.
• the Nominations Committee
Corporate governance
continued
Risk Management. Responsibility for managing these risks joint meeting of the Quality & Risk and
The Board has the ultimate responsibility for our group is as follows: Audit Committees) to ensure that all key
for ensuring that an appropriate system risks that have been recorded have
Financial risk – The Chief Financial
of risk management and internal control appropriate mitigating controls in place.
Officer (reporting into Head of Finance
operates throughout our group that The output of this work is ultimately
& Infrastructure).
covers all the key enterprise risks that presented to the Board. Our strategy
we collectively face. Operational risk – The Chief Operating is under the direct control of the Board,
Officer. which considers and reviews the
The enterprise risks that the Board
appropriateness of KPMG’s strategy
seeks to manage fall into the following Professional risk – the Head of Quality
(taking into account the current risk
main categories: & Risk.
register) both on an ongoing basis and
• financial risk A risk register, capturing key risks in formally annually.
all categories of enterprise risk, is
• operational risk; and Our group operates systems designed
maintained to help ensure that those
to manage rather than eliminate the risk
• professional risk. with responsibility for corporate
of failure to achieve business objectives
governance have a full understanding of
which could otherwise be affected by
all of the key risks facing our group. This
any of these risks. As such, these
register is reviewed annually (initially by
systems can only provide reasonable
the Executive Committee and then at a
KPMG Europe LLP | �����������������������
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Report 2010 | 51
assurance against material misstatement 2. High ethical standards. 4. Rigorous procedures for acceptance
or loss. The Board (either directly itself Our shared values help shape the culture and continuance of client relationships
or through one of its sub-committees) of our group. Our overriding value is that and engagements.
has reviewed the effectiveness of the ‘above all we act with integrity’. For us Rigorous client and engagement
system of internal controls in operation integrity means constantly striving to acceptance and continuance procedures
during the year and is satisfied with uphold the highest professional standards are important to the ability of our firms
its effectiveness. in our work, providing good quality advice to provide quality professional services.
to our clients and rigorously maintaining Our procedures include performing
How we deliver engagement quality.
our independence. Our commitment to annual evaluations of the risks associated
Our system of quality controls is
professionalism and integrity is also with working for a particular client including
designed to meet the expectations of
enshrined in the KPMG Code of Conduct specific evaluations to determine whether
our clients as well as the rules and
(the Code). Our Code sets out KPMG’s or not KPMG is willing and able to provide
standards issued by national regulators
ethical principles. It emphasises that a specific service to a client. For higher
and professional institutions (including
each partner and employee is personally risk clients and engagements, approval
those required by the International
responsible for following the legal, is required from local Quality &
Federation of Accountants (IFAC); the
professional, and ethical standards that Risk professionals.
Public Company Accounting Oversight
apply to his or her job function and level
Board (PCAOB) and the International 5. Processes which deliver effective
of responsibility. The Code is underpinned
Standard of Quality Control No 1 (ISQC1) engagement performance.
by the core value of integrity.
and any national regulators). Our firms have developed standardised
To ensure our independence and tools and methodologies for many of
The system of quality controls applicable
objectivity in respect of any client our services. These include functional
across our group for all of our services
engagement, our firms and their partners manuals, work programmes and IT tools
encompasses the following key elements:
and staff must be free from any prohibited and have been implemented to help
• leadership responsibility for quality financial interest in respect of our clients’ ensure that our people deliver their
business and free from any prohibited services to the required standard.
• high ethical standards
relationship with our clients. In order to
6. Monitoring activities.
• strong people management achieve this independence, all firms
Policies and procedures are monitored
comply with the independence standards
• rigorous procedures for acceptance regularly to ensure continuing relevance
set by IFAC and the SEC (where relevant)
and continuance of client relationships and effectiveness. In addition,
as well as any relevant local standards.
and engagements independent reviews (including reviews
We have appointed a dedicated Ethics
of specific engagements) are performed
• processes which deliver effective and Independence Partner to help ensure
each year to assess the effectiveness
engagement performance; and that we apply consistent and rigorous
of and compliance with the required risk
independence policy, processes and
• monitoring activities. management and quality control policies
tools across our group.
and procedures.
1. Leadership responsibility for quality.
3. Strong people management.
We recognise the importance of Further details on our quality control
One of the key drivers of quality is
delivering quality services and are procedures are set out in the 2010 ELLP
ensuring that you have the right partners
committed to doing so. The Board is Transparency Report available online at
and staff members assigned to an
responsible for setting strategy and has www.kpmg.eu/annualreport.
engagement. To help ensure that we
ultimate responsibility for our system of
recruit and retain the right people, we
quality control (which is run in accordance
adopt best practice human resources
with the principles in ISQC1). The Board
policies and procedures covering matters
has determined that a commitment to
such as recruitment, performance
quality is the most important of its
evaluation, professional development,
priorities. We recognise that if we do
compensation and partner admission.
not get the quality of our service and
In assigning people to specific
deliverables right, then each and every
engagements we evaluate a range
one of the other objectives in our
of factors including their skill set,
business plan may be jeopardised.
professional and industry experience
and the nature of the engagement.
52 | KPMG Europe LLP | Annual Report 2010
Board members.
01 02 03 04
05 06 07 08
09 10 11 12
13 14 15 16
17 18 19 20
21 22 23 24
25 26
16. Michael Gewehr 21. Jack van Rooijen2 Appointed 1 April 2010.
1
The Board (as set out on pages 52 to 53) The intention of each of the KPMG firms in the Netherlands, CIS and
submits its report together with the member firms in these countries when Luxembourg had an impact on revenue.
audited consolidated financial statements merging with the partnership was that Hence, the group’s reported revenue of
of KPMG Europe LLP and its subsidiary their entire firm should be included within €4,065 million was up 16% compared to
undertakings (the group) for the year the group. However, for contractual and the prior year, although on a pro-forma
ended 30 September 2010. The report regulatory reasons, this is not currently basis which treats all countries as having
to the members should be read in possible in certain countries and the audit been in the group throughout both years,
conjunction with the other sections of firm in Belgium and the Turkish firm’s revenues fell by 3%.
this annual report. The financial Audit and Tax entities are therefore wholly
statements to be filed at Companies excluded from the group whilst certain On this proforma basis (which also ignores
House will comprise the group financial other entities are not wholly owned by the impact of exchange rate movements),
statements and the separate financial the partnership. In all cases, ELLP has revenues in the Audit function held up
statements of KPMG Europe LLP. call options to acquire 100% of the share relatively well in challenging market
capital of such entities, as set out in conditions, declining by 7%. Demand for
Legal structure. note 27. tax services began to recover particularly
KPMG Europe LLP (the partnership) is in the UK as merger and acquisition and
incorporated in the United Kingdom as a The principal subsidiary and associate pension activity increased, although these
limited liability partnership (LLP) under the undertakings of the partnership are set improvements were less apparent in other
Limited Liability Partnerships Act 2000. out in note 27. Details on the governance countries; Tax revenues fell by 2%. Our
It was wholly owned by its members of the group are set out in the Corporate Advisory function matured into three
throughout the year. The partnership, governance section on pages 48 to 51, separate functions, better reflecting the
which has its headquarters in Frankfurt which also discusses the group’s skills and services demanded by clients.
am Main, Germany, has dual registration: approach to risk management. We now report these three functions
providing advisory services – Transactions
• In the UK: registered number Designated members. & Restructuring, Risk & Compliance and
OC324045, registered address The designated members (as defined in Performance & Technology.
15 Canada Square, Canary Wharf, the Limited Liability Partnerships Act 2000)
London, E14 5GL. of the partnership during the year were Transactions & Restructuring has faced a
• In Germany (in the commercial register John Griffith-Jones, Rolf Nonnenmacher, challenging market this year across the
at the District Court of Frankfurt am Joachim Schindler and Richard Bennison. group with a lack of merger and acquisition
Main): registered number HRA 44574, activity, declining by 4% on a proforma
registered address 60439 Frankfurt am Principal activity. basis. However, the Restructuring business
Main, Marie-Curie-Strasse 30. The group offers audit and tax services in the UK has been very busy, which has
and advisory services, organised mitigated the decline. The growth in
At 30 September 2010, the group through the functions of Transactions & Performance & Technology, up 17% on a
comprised the following: Restructuring, Risk & Compliance and proforma basis, has been driven largely on
Performance & Technology, across Europe. demand from the financial services sector.
• KPMG member firms providing audit,
Risk & Compliance has achieved a mixed
tax and advisory services in the UK, Strategy.
performance across the group, declining by
Germany, Switzerland, Spain, The Chief Operating Officer discusses the
8% overall; whilst most regions have seen
Luxembourg and the Commonwealth group’s strategy on pages 6 to 9.
a decline, the UK has achieved good
of Independent States (CIS, comprising
Financial performance. growth largely driven by the performance
entities in Russia, Ukraine, Armenia,
As set out above, the group’s results cover of its financial risk management and
Kazakhstan, Kyrgyzstan and Georgia);
the KPMG member firms in a number of forensic businesses.
• The KPMG member firm in the
Netherlands providing audit and countries. Some of the entities in these
As required by IFRS, operating profit for
advisory services; and member firms were controlled by the
the financial year is shown after deduction
• Certain entities of the KPMG member group for the full year ended 30 September
of members’ remuneration payable under
firms in Belgium and Turkey. 2010 whilst others were members of the
local employment and service contracts
group for only various parts of the year.
but before all profit shares payable to UK
Group revenue was boosted by the partners. The operating profit of €513
completion of mergers and acquisitions million is, as a consequence, almost
during the year as set out in note 9; in entirely denominated in pounds sterling
particular, mergers with KPMG member and the increase compared to the previous
year’s €444 million is attributable to the
continued provision of services valued by
clients whilst keeping costs under tight
control in the UK.
KPMG Europe LLP | Annual�����������������
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Report 2010 | 55
Average full-time equivalent headcount of The group’s operating activities are normally Events after the year end.
the group on a pro-forma basis for the year cash generative, save for investments in Subsequent to 30 September 2010,
was 28,190. This was a fall of 4%, arising property, plant and equipment and the members of ELLP voted to accept
in most of the group’s operating segments intangible assets. Cash outflows are the merger into the group of the KPMG
as the firm managed its resources in strongly influenced by the timing and member firms in Norway and the
response to weak demand for services. amounts of payments in respect of profit Kingdom of Saudi Arabia. At the date of
Performance & Technology was the shares and bonuses to members and approval of these accounts, however, the
exception, with headcount increasing as staff. In the year to 30 September 2010, related agreements to give legal effect to
a result of investment initiatives. there was considerable investment in the these mergers had not been completed.
group’s infrastructure, reflected in
Net assets and liquidity. €129 million additions to property, In addition, the group acquired two small
The group’s statement of financial position plant and equipment and €19 million Belgian companies providing audit services.
at 30 September 2010 includes the assets to intangible assets. Further details are given in note 28 to the
and liabilities of the group’s entities in the financial statements.
UK, Germany, Switzerland, Spain, Belgium, Going concern.
CIS, Luxembourg and the Netherlands; The group’s business activities, together The group also exercised its call options
at 30 September 2009, UK, Germany, with the factors likely to affect its future over the KPMG Audit entity in Spain and
Switzerland and certain entities in Spain development, performance and position, the KPMG Luxembourg entity providing
and Belgium. are set out in the Chairmen’s statement tax services. Further details are given in
on pages 2 to 5. The financial position note 28.
Operations are generally financed by of the group, its cash flows and liquidity
members’ capital and other reserves, Treasury and risk policies.
are discussed above. In addition, note 23
which together totalled €676 million at The group’s presentation currency is the
to the financial statements sets out the
30 September 2010. Bank facilities of euro. The principal functional currencies
group’s objectives, policies and processes
€515 million are also available to the of the group’s operating subsidiaries in
for risks arising from the group’s use of
group, against which €181 million had the year were the euro, pound sterling,
financial instruments, in particular its
been drawn at 30 September 2010. Swiss franc and rouble. The principal
exposure to credit and liquidity risks. The
treasury risks of the group relate to
borrowing facilities, together with details
Capital is provided by each member on exchange rate, liquidity and interest –
of amounts drawn down under these
becoming a partner and totalled €139 full details of the group’s policies and
borrowing facilities, are also set out in
million at 30 September 2010 (2009: €99 management of treasury risks are set out
note 23.
million). The increase reflects a mixture of in note 23 to the financial statements.
capital from partners in the Netherlands, The group has considerable financial The principal trading risks faced relate to
CIS, Luxembourg and Turkey and resources together with well-established the current uncertain economic position,
additional capital from partners in existing relationships with many clients and discussed by the Chief Operating Officer
group countries. Capital is only repayable suppliers across different geographic on pages 6 to 9, and the possibility of
on retirement or resignation and is areas and industries. As a consequence, professional negligence claims, against
therefore relatively stable from year to year. the Board believes that the group is well which the group has a substantial level
placed to manage its business risks of insurance cover and extensive risk
The group’s main assets attributed to management policies, as discussed in
successfully.
the client service segments are trade the Corporate governance section on
receivables and unbilled amounts for After making enquiries, the Board has a pages 48 to 51.
client work. Both categories are monitored reasonable expectation that the group has
monthly at departmental and function adequate resources to continue in
levels. The prompt rendering of fees for operational existence for the foreseeable
work done, and collection of the resulting future. Accordingly, the Board continues
receivables, are important aspects of to adopt the going concern basis in
the group’s monitoring of financial risks. preparing these financial statements.
These assets attributed to segments,
totalled €836 million at 30 September
2010, compared to €726 million at 30
September 2009.
56 | KPMG Europe LLP | Annual Report 2010
Members’ remuneration. The Limited Liability Partnerships Under Regulation 6 of the 2008
The distributable profits for each (Accounts and Audit) (Application of Regulations the members are responsible
accounting period are determined by the Companies Act 2006) Regulations 2008 for keeping adequate accounting records
Board and are allocated to each member (the 2008 Regulations) require the that are sufficient to show and explain the
by the Executive Committee. A member members to prepare group financial partnership’s transactions and disclose
may receive income under a contract with statements for each financial year. Under with reasonable accuracy at any time its
a subsidiary company, or as a profit share that law the members have elected to financial position and enable them to
from the partnership or a subsidiary LLP. prepare the group financial statements ensure that its financial statements
Policies on the allocation of profits and in accordance with IFRS as adopted by comply with those regulations. They have
drawings, and on members’ capital, are the EU. general responsibility for taking such steps
discussed in note 1 on pages 66 to 67. as are reasonably open to them to
Under Regulation 8 of the 2008 Regulations safeguard the assets of the group and
Creditor payment policy. the members must not approve the to prevent and detect fraud and
We agree commercial terms with financial statements unless they are other irregularities.
suppliers (including payment terms) and, satisfied that they give a true and fair view
if performance accords with these terms, of the state of affairs of the group and of The members are responsible for the
we abide by the agreed payment the profit of the group for that period. maintenance and integrity of the corporate
arrangements. and financial information included on the
In preparing these financial statements, group’s website. Legislation in the UK
Statement of members’ the members are required to: governing the preparation and
responsibilities in respect of the dissemination of financial statements may
Report to the members and the • select suitable accounting policies and
differ from legislation in other jurisdictions.
group financial statements. then apply them consistently;
During the year, these responsibilities
The members are responsible for • make judgements and estimates that
were exercised by the Board on behalf
preparing the Report to the members are reasonable and prudent;
of the members.
and the group financial statements in • state whether they have been prepared
accordance with applicable law in accordance with IFRS as adopted by
and regulations. the EU; and
• prepare the financial statements on the
going concern basis unless it is
inappropriate to presume that the group
will continue in business.
KPMG Europe LLP | Annual�����������������
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Report 2010 | 57
We have audited the group financial In addition we report to you if, in our Opinion.
statements of KPMG Europe LLP for the opinion, KPMG Europe LLP has not kept In our opinion the group financial
year ended 30 September 2010 which adequate accounting records, or returns statements:
comprise the consolidated income adequate for our audit have not been
statement, the consolidated statement of received from branches not visited by us, • give a true and fair view of the state of
comprehensive income, the consolidated or the group financial statements are not the group’s affairs as at 30 September
statement of financial position, the in agreement with the accounting records 2010 and of its profit for the year
consolidated statement of changes in and returns, or if we have not received all then ended;
equity, the consolidated statement of the information and explanations we
• have been properly prepared in
cash flows and the related notes. These require for our audit.
accordance with IFRSs as adopted by
financial statements have been prepared
We read other information contained in the European Union; and
under the accounting policies set
out therein. the annual report and consider whether
• have been prepared in accordance
it is consistent with the audited group
with the Companies Act 2006 as
We have reported separately on the financial statements. This other
applied by the Limited Liability
parent financial statements of KPMG information comprises only the Report
Partnerships (Accounts and Audit)
Europe LLP for the year ended 30 to the members and the information
(Application of Companies Act 2006)
September 2010. on pages 1 to 53. We consider the
Regulations 2008.
implications for our report if we become
This report is made solely to the aware of any apparent misstatements or
members, as a body, in accordance with material inconsistencies with the group
Chapter 3 of Part 16 of the Companies Act financial statements.
2006 as applied by the Limited Liability
Partnerships (Accounts and Audit) Basis of audit opinion. Stephen P. S. Weatherseed
(Application of Companies Act 2006) We conducted our audit in accordance Senior Statutory Auditor
Regulations 2008. Our audit work has with International Standards on Auditing for and on behalf of
been undertaken so that we might state (UK and Ireland) issued by the Auditing Grant Thornton UK LLP
to the members those matters we are Practices Board. An audit includes Statutory Auditor,
required to state to them in an auditor’s examination, on a test basis, of evidence Chartered Accountants
report and for no other purpose. To the relevant to the amounts and disclosures in London
fullest extent permitted by law, we do not the group financial statements. It also 13 December 2010
accept or assume responsibility to anyone includes an assessment of the significant
other than the partnership and the estimates and judgements made by the
members as a body for our audit work, members in the preparation of the group
for this report, or for the opinions we financial statements, and of whether the
have formed. accounting policies are appropriate to the
group’s circumstances, consistently
Respective responsibilities of applied and adequately disclosed.
members and auditors.
The members’ responsibilities for We planned and performed our audit
preparing the report to the members so as to obtain all the information and
and the group financial statements in explanations which we considered
accordance with United Kingdom law necessary in order to provide us with
and International Financial Reporting sufficient evidence to give reasonable
Standards (IFRSs) as adopted by the assurance that the group financial
European Union are set out in the statements are free from material
‘Statement of members’ responsibilities misstatement, whether caused by fraud
in respect of the Report to the members or other irregularity or error. In forming
and the group financial statements’. our opinion we also evaluated the overall
adequacy of the presentation of information
Our responsibility is to audit the group in the group financial statements.
financial statements in accordance with
relevant legal and regulatory requirements
and International Standards on Auditing
(UK and Ireland). It is our responsibility to
form an independent opinion based on our
examination, and to report our opinion
to you.
58 | KPMG Europe LLP | Annual Report 2010
2010 2009
Millions Euros Note €m €m
Revenue. 3 4,065 3,495
Other operating income. 5 156 120
Personnel costs. 6 (2,389) (1,948)
Depreciation and amortisation. 11,12 (83) (52)
Other operating expenses. 7 (1,236) (1,171)
Operating profit. 513 444
Financial income. 8 96 121
Financial expense. 8 (106) (113)
Net financial (expense)/income. (10) 8
503 452
Negative goodwill arising in the year. 9 9 –
Profit before taxation. 512 452
Tax expense. 10 (10) (6)
Profit for the financial year. 502 446
Profit for the financial year, attributable to:
Members as owners of the parent entity. 501 446
Non-controlling interests. 1 –
502 446
2009
2010 Restated
Assets. Millions Euros Note €m €m
Non-current assets
Property, plant and equipment 11 579 427
Intangible assets 12 108 88
Securities and other investments 13 61 58
Deferred tax assets 14 91 49
Tax receivable 10 12 14
Employee benefits 21 10 28
Non-current loans and receivables 15 13 25
874 689
Current assets
Trade and other receivables 16 1,321 929
Amounts due from members 22 152 146
Other investments 17 103 96
Tax receivable 13 12
Cash and cash equivalents 18 309 270
1,898 1,453
Total assets 2,772 2,142
Equity and liabilities
Other reserves classified as equity, being equity attributable
to members, as owners of the parent entity 537 589
Non-controlling interests (9) –
Total equity 528 589
Liabilities
Non-current liabilities
Employee benefits 21 254 105
Amounts due to members 22 3 –
Provisions 20 185 165
Deferred tax liabilities 14 18 5
Other non-current liabilities 7 9
467 284
Current liabilities
Short-term bank borrowings 23 181 158
Trade and other payables 19 986 749
Tax payable 15 34
Amounts due to members 22 417 194
Provisions 20 39 35
Members’ capital 22 139 99
1,777 1,269
Total liabilities 2,244 1,553
Total equity and liabilities 2,772 2,142
The financial statements on pages 58 to 97 were approved by the members on 13 December 2010 and were signed on their behalf by:
John Griffith-Jones Joint Chairman Prof. Dr. Rolf Nonnenmacher Joint Chairman
60 | KPMG Europe LLP | Annual Report 2010
Members’ Non-
other Fair value Translation controlling Total
reserves reserve reserve Total interests equity
Millions Euros €m €m €m €m €m €m
Balance at 1 October 2008 855 (3) (90) 762 – 762
2010 2009
Millions Euros Note €m €m
Cash flows from operating activities
Profit for the financial year 502 446
Adjustments for
Tax expense 10 10 6
Negative goodwill arising in the year 9 (9) –
Depreciation and amortisation 11, 12 83 52
Financial income 8 (96) (121)
Financial expense 8 106 113
596 496
(Increase)/decrease in trade and other receivables (112) 238
Increase/(decrease) in trade and other payables 10 (144)
Decrease in provisions and employee benefits (33) (31)
Cash generated from operations 461 559
Interest and other financial costs paid (8) (7)
Corporate taxes paid (26) (16)
Net cash flow from operating activities before transactions with non-salaried members 427 536
Payments to or on behalf of members without employment or service contracts (390) (413)
Net cash flows from operating activities 37 123
Cash flows from investing activities
Cash acquired on business combinations (net of cash paid) 9 122 2
Proceeds from sale of property, plant and equipment 14 1
Interest and other financial income received 8 6 9
Dividends paid to non-controlling interests (9) –
Disposal of investments and securities – 29
Acquisition of investments and securities (6) –
Acquisition of property, plant and equipment (129) (131)
Development and acquisition of capitalised intangible assets 12 (19) (31)
Net cash flows from investing activities (21) (121)
Cash flows from financing activities
Short-term bank borrowings (11) 63
Loans advanced – (17)
Capital introduced by members 22 33 14
Capital repayments to members 22 (16) (7)
Net cash flows from financing activities 6 53
Net increase in cash and cash equivalents 22 55
Cash and cash equivalents – beginning of the year 270 283
Effects of exchange rate fluctuations 17 (68)
Cash and cash equivalents at the end of the year 18 309 270
62 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements
1 Accounting policies. The amendments to IFRS 3 and IAS 27 There are no other adopted IFRSs,
KPMG Europe LLP (the partnership) was are to be applied prospectively and so amendments or interpretations that
incorporated in the UK on 17 November have been applied in accounting for require mandatory application. The
2006 as a limited liability partnership (LLP) business combinations occurring during following amendment and interpretation
under the Limited Liability Partnerships the year ended 30 September 2010 but have been endorsed and will be adopted
Act 2000. It has its seat in Frankfurt am have had no impact on the accounting for by the group in the year ending 30
Main, Germany and is also registered with business combinations occurring in prior September 2011:
the Handelsregister, Frankfurt. periods. Additional disclosures in respect
of business combinations occurring during • Amendment to IFRIC 14: ‘Prepayments
The consolidated financial statements the year ended 30 September 2010 have of a Minimum Funding Requirement’:
include the financial statements of the been provided as a result of the effective for periods beginning on or
partnership and its subsidiary amendments (see note 9). after 1 January 2011.
undertakings (the group). • Revised IAS 24: ‘Related Party
It has also been necessary to reclassify Disclosures’: effective for periods
The accounting policies set out below a €40 million lease prepayment from non- beginning on or after 1 January 2011.
have been applied consistently to all current receivables to property, plant and
periods presented in these consolidated equipment as the underlying lease now It is expected that these changes will
financial statements and have been ranks as a finance lease rather than an result in a small number of insignificant
applied consistently by all group entities. A operating lease, following the amendment changes to disclosures but otherwise
number of amendments and to IAS 17 ‘Leases’ made as part of the have no impact.
interpretations to International Financial Improvements to IFRSs (issued by the
Reporting Standards issued by the Basis of preparation.
IASB in April 2009). As this payment had
International Accounting Standards Board These financial statements have been
not been made at 30 September 2008,
(IASB) as adopted by the European Union prepared in accordance with adopted
arising only on legal completion of the
(adopted IFRSs) have been endorsed by IFRSs. The financial statements have been
property development in April 2009,
the European Union with effective dates approved by the members. The financial
restatement in 2008 is not relevant and
such that they fall to be applied by the statements are prepared on the historical
hence no restated information as at
group. Most notably for these financial cost basis except that all derivative
30 September 2008 (as would be required
statements, the following amendments financial instruments and certain other
under the Revision to IAS 1 – see below)
and interpretations to published standards financial instruments are stated at their
has been presented.
are reflected for the first time: fair value.
The remaining amendments have resulted
• Improvements to IFRSs (issued by the The preparation of financial statements
in a small number of insignificant changes
IASB in May 2008): various effective in conformity with adopted IFRSs requires
to disclosures given in the group’s financial
dates, all of which are mandatory for the management to make judgements,
statements but otherwise have had
year ended 30 September 2010. estimates and assumptions that affect the
no impact.
• Revised IFRS 3 ‘Business application of policies and reported
combinations’: effective for periods The group has previously voluntarily adopted amounts of assets and liabilities, income
beginning on or after 1 July 2009. the following adopted IFRSs and related and expenses. Judgements made by
• Amendments to IAS 27 ‘Consolidated amendments and interpretations: management in the application of adopted
and Separate Financial Statements’: • IFRS 8 ‘Operating segments’: voluntarily IFRSs that have a significant effect on the
effective for periods beginning on or adopted in the year ended 30 September financial statements and estimates with a
after 1 July 2009. 2008. This standard is mandatory only significant risk of material adjustment in
• Amendment to IFRS 7 ‘Improving for listed entities and for such entities is the next year are discussed in note 2.
Disclosures about Financial mandatory for financial years beginning
The functional currency of the partnership
Instruments’: effective for periods on or after 1 January 2009.
and the presentation currency of the group
beginning on or after 1 January 2009. • Revision to IAS 1 ‘Presentation of
is the euro. The financial statements are
• Improvements to IFRSs (issued by the Financial Statements: Revised 2007’:
presented in millions of euro (€m) unless
IASB in April 2009): various effective early adopted in the year ended
stated otherwise.
dates, some of which are for periods 30 September 2009. This standard is
beginning on or after 1 July 2009, others effective for financial years beginning Basis of consolidation and
for periods beginning on or after 1 January on or after 1 January 2009. equity accounting.
2010. The latter have been early adopted • Amendments to IAS 32 and IAS 1 The bringing together on 1 October 2007
in these financial statements. ‘Puttable financial instruments and of the KPMG International member firms
obligations arising on liquidation’: in Germany and the UK and the
early adopted in the year ended subsequent addition of member firms in
30 September 2009. This standard is other countries (see notes 9 and 27) were
effective for financial years beginning regarded by the respective countries’
on or after 1 January 2009. partners as being mergers of like-minded
professional services firms, not involving
an ‘acquisition’ in the normal sense.
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Notes
forming part of the consolidated financial statements continued
1 Accounting policies continued. Business combinations. Intangible assets have been recognised
No attempt was made in the merger For business combinations, fair values in respect of customer relationships,
negotiations to value each firm on an that reflect conditions at the date of the framework contracts, order books and
arm’s length basis, other than for the business combination and the terms of similar assets. Each category is amortised
impact of harmonising accounting policies. each business combination are attributed over its estimated useful life, as follows:
to the identifiable assets, liabilities and
However, adopted IFRSs do not permit contingent liabilities acquired. For business Customer relationships 7–20 years
the possibility of accounting for a business combinations achieved in stages, the Framework contracts 2–4 years
combination as a merger or through the group revalues its equity accounted Order book 3–6 months
pooling of interests method. Rather, IFRS investment to the fair value reflecting
3 ‘Business Combinations’ requires that all the conditions at the date of acquisition Foreign currency.
cases meeting the definition of a business of the controlling share with any resultant Transactions in each entity in currencies
combination must be accounted for as an gain or loss recognised in profit or loss. other than its functional currency are
acquisition. The creation of the group and Consideration is measured at the fair value recorded at the foreign exchange rate ruling
subsequent mergers have each contained of liabilities incurred by the group to the at the date of the transaction. Monetary
aspects that meet the definition of a previous owners. Goodwill is recognised assets and liabilities denominated in
business combination and have therefore where the cost of the business foreign currencies at the year end are
been treated as acquisitions. combination exceeds the total of these fair translated in each entity at the foreign
values. Where the excess is positive, it is exchange rate ruling at that date. Foreign
Acquisitions by entities in the group exchange differences arising on translation
treated as an intangible asset, subject to
of businesses from third parties also are recognised in the income statement
annual impairment testing. Where the
represent business combinations. within financial income or expense, as
excess is negative (referred to in these
financial statements as negative goodwill), appropriate. Non-monetary assets that are
Subsidiaries are entities controlled by
it is recognised immediately in the measured in terms of historical cost in a
the partnership. Control exists when the
income statement. foreign currency are translated using the
partnership has the power, directly or
exchange rate at the date of
indirectly, to govern the financial and
The mergers which formed the group, the transaction.
operating policies of an entity so as to
or have arisen since formation, reflect
obtain benefits from its activities. In For presentation purposes, the revenues
expectations that future profits arising in
assessing control, potential voting rights and expenses of subsidiary undertakings
the ‘acquired’ member firms from their
that are currently exercisable or with a functional currency other than euro
existing client contracts and relationships
convertible are taken into account. The are translated at an average rate for the
will continue in practice substantially to
financial statements of subsidiaries are period where this rate approximates to the
accrue to the partners in the ‘acquired’
included in the consolidated financial foreign exchange rates ruling at the dates
firms. This is to be contrasted with the
statements from the date that control of transactions. The assets and liabilities
group’s commercial acquisitions where
commences to the date that of such undertakings, including goodwill
the purchase results in the acquirer having
control ceases. and fair value adjustments arising on
full access to the profits and cash flows
of the entity acquired. Accordingly, in consolidation, are translated at foreign
Associates are those entities in which
considering the value to be ascribed under exchange rates ruling at the year end.
the group has significant influence, but not
each merger to intangible assets in the Exchange differences arising from this
control, over the financial and operating
acquired firm, allowance is made for an translation are recognised in other
policies. Associates are accounted for
arm’s length assessment of the comprehensive income in the translation
using the equity method and are initially
remuneration of partners in the joining reserve. They are reclassified from equity
recognised at cost. The consolidated
country for their services to the group, as to profit or loss as a reclassification
financial statements include the group’s
distinct from that part of their total reward adjustment when a gain or loss on
share of the total comprehensive income
estimated to be attributable to a return on disposal of the relevant subsidiary
and equity movements of associates,
the capital they own in the group. Similar is recognised.
from the date that significant influence
commences until the date that significant assessments of intangible assets arise on
influence ceases. commercial acquisitions but without this
refinement for partners’ remuneration.
Notes
forming part of the consolidated financial statements continued
1 Accounting policies continued. All distributions to members of these Financial income and expense
Revenue. LLPs are made net of income tax; such Financial income comprises interest and
Revenue represents the fair value of the amounts retained are paid to the local tax dividend income on funds invested
consideration receivable in respect of authorities by the entities, on behalf of (including available-for-sale financial
professional services provided during the the individual members, when this tax assets and held-to-maturity investments),
year, inclusive of recoverable expenses falls due. These amounts retained for tax discount on property prepayment,
incurred on client assignments but are treated in the financial statements in expected returns on defined benefit
excluding value added tax. Where the the same way as other profits of the pension plan assets, gains on derivatives
outcome of a transaction can be estimated partnership and its subsidiary LLP and so recognised in profit or loss, exchange
reliably, revenue associated with the are included in ‘Members’ other interests’ gains and other income. Interest income
transaction is recognised in the income or in ‘Amounts due to members’ is recognised as it accrues, using the
statement by reference to the stage of depending on whether or not division effective interest method. Dividend
completion at the year end, provided that of profits has occurred. income is recognised on the date that
a right to consideration has been obtained the group’s right to receive payment is
through performance. Consideration The companies dealt with in the established, which in the case of quoted
accrues as contract activity progresses by consolidated financial statements are securities is the ex-dividend date.
reference to the value of work performed. subject to local corporate taxes based on
Hence revenue in respect of service their profits for the accounting period. Financial expense comprises exchange
contracts represents the cost appropriate Tax and any deferred taxation of these losses, interest cost on short-term bank
to the stage of completion of each contract companies are recorded in the consolidated borrowings, losses on derivatives
plus attributable profits, less amounts income statement or consolidated recognised in profit or loss, interest cost
recognised in previous years statement of comprehensive income on defined benefit pension plan liabilities,
where relevant. under the relevant heading and related discount on provisions and other finance
balances are carried as tax payable or costs. All borrowing costs are recognised
Where the outcome of a transaction receivable in the consolidated statement in the income statement using the
cannot be estimated reliably, revenue is of financial position. Current tax is the effective interest method.
recognised only to the extent that the expected tax payable on the taxable
costs of providing the service are income for the year, using tax rates Property, plant and equipment.
recoverable. No revenue is recognised enacted or substantively enacted at year Property, plant and equipment is stated
where there are significant uncertainties end, and any adjustment to tax payable in at cost less accumulated depreciation
regarding recovery of the consideration respect of previous years. and impairment losses. Parts of an item
due or where the right to receive payment of property, plant and equipment having
is contingent on events outside the control Deferred tax in subsidiary companies different useful lives are accounted for
of the group. Expected losses are is provided on temporary differences as separate items.
recognised as soon as they become between the carrying amounts of assets
and liabilities for financial reporting Leases under which the group assumes
probable based on the latest estimates
purposes and the amounts used for substantially all the risks and rewards of
of revenue and costs.
taxation purposes. The following ownership are classified as finance leases.
Unbilled revenue is included in trade and temporary differences are not provided Upon initial recognition the leased asset is
other receivables as ‘Unbilled amounts for for: the initial recognition of goodwill; the measured at an amount equal to the lower
client work’. Amounts billed on account in initial recognition of assets or liabilities in of its fair value and the present value of
excess of the amounts recognised as a transaction that is not a business the minimum lease payments, assessed
revenue are included in ‘Trade and combination and that affects neither at inception of the lease. Subsequent to
other payables’. accounting nor taxable profit; and initial recognition, the asset is accounted
differences relating to investments in for in accordance with the accounting
Recoverable expenses represent charges subsidiaries to the extent that they will policy applicable to that asset.
from other KPMG member firms and sub- probably not reverse in the
contractors and out of pocket expenses foreseeable future.
incurred in respect of assignments in
progress and expected to be recovered The amount of deferred tax provided
from clients. is based on the expected manner of
realisation or settlement of the carrying
Taxation amount of assets and liabilities, using tax
For those group entities that are UK LLPs, rates enacted or substantively enacted at
taxation on all profits is solely the personal year end. A deferred tax asset is recognised
liability of the individual members. only to the extent that it is probable that
Consequently neither taxation nor related future taxable profits will be available
deferred taxation arising in respect of the against which the asset can be utilised.
partnership (or its subsidiary, KPMG LLP) is
accounted for in these financial statements.
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Notes
forming part of the consolidated financial statements continued
1 Accounting policies continued Goodwill, customer relationships, Any resultant gain or loss on those assets
Depreciation is provided to write off the framework contracts and order books classified as fair value through profit or loss
cost less the estimated residual value of are discussed in ‘Business combinations’ is recognised in the income statement.
property, plant and equipment and is above. Goodwill is stated at cost less
charged to the income statement on a any accumulated impairment losses. Non-current loans and receivables.
straight-line basis over the estimated Customer relationships, framework Non-current loans and receivables are
useful lives of each part of an item of contracts and order books are stated initially recognised at fair value, based
property, plant and equipment. The at cost less accumulated amortisation. upon the estimated present value of
estimated useful lives are as follows: future cash flows discounted at the
Non-derivative financial instruments. market rate of interest at the year end.
Leasehold 999 years Non-derivative financial instruments Subsequent to initial recognition, non-
land (or life of lease, if shorter) comprise investments in securities and current loans and receivables are
Leasehold 50 years other investments, trade and other recorded at amortised cost.
buildings (or life of lease, if shorter) receivables, cash and cash equivalents,
Office furniture, 5–12 years loans and borrowings, trade and other Trade and other receivables.
fittings and payables, members’ capital and amounts Trade and other receivables (except
equipment due to and from members. unbilled amounts for client work) are
Computer and 2–5 years recognised at fair value, based upon
communications Securities. discounted cash flows at prevailing
equipment If the group has a positive intent to hold interest rates, or at their nominal amount
to maturity securities for which the less impairment losses if due in less
Motor vehicles 5 years
amounts due are fixed or determinable than 12 months. Subsequent to initial
The residual value, if not insignificant, is and have a fixed maturity, then they are recognition, trade and other receivables
reassessed annually. considered to be held-to-maturity financial are valued at amortised cost less
instruments and are classified as non- impairment losses.
Intangible assets. current securities unless due to mature
Expenditure on research is recognised in less than 12 months. These assets are Short-term bank borrowings.
in the income statement as an expense initially measured at fair value, calculated Short-term bank borrowings are
as incurred. Development expenditure on by reference to their quoted bid price. recognised at fair value, based upon the
internally generated software is capitalised Subsequent to initial recognition, these nominal amount outstanding. Subsequent
if the product or process is technically and assets are measured at amortised cost, to initial recognition, they are recorded at
commercially feasible and the group has using the effective interest method, less amortised cost. Borrowing costs arising on
sufficient resources to complete any impairment losses. short-term bank borrowings are expensed
development. The expenditure capitalised as incurred within financial expense. Initial
includes the cost of materials, direct Other investments. facility fees incurred in respect of bank
labour and an appropriate proportion Other investments held by the group borrowing facilities are capitalised and
of overheads. Other development mainly comprise bonds, equities and amortised over the facility life.
expenditure is recognised in the income shares in investment funds. These assets
statement as an expense as incurred. are classified either as available-for-sale or Trade and other payables.
at fair value through profit or loss and are Trade and other payables are recognised
Capitalised development expenditure and stated at fair value, calculated by reference at fair value, based upon the nominal
software and licences that are acquired by to their stock exchange price at the amount outstanding. Subsequent to
the group and have a finite useful life are year end. initial recognition, they are recorded at
measured at cost less accumulated amortised cost.
amortisation and impairment losses. Any resultant gain or loss on those
assets classified as available-for-sale Cash and cash equivalents.
Amortisation is charged to the income is recognised in other comprehensive Cash and cash equivalents comprise
statement on a straight-line basis over the income, in the fair value reserve, except cash balances and call deposits. The cash
estimated useful lives of intangible assets for impairment losses and, in the case of and cash equivalents are stated at their
from the date that they are available for monetary items such as debt securities, nominal values, as this approximates to
use. The estimated useful life of software foreign exchange gains and losses. When amortised cost.
and licences and of internally generated these investments are derecognised, the
software is generally five to eight years. cumulative gain or loss is reclassified from
the fair value reserve to profit or loss.
Where these investments are interest
bearing, interest calculated using the
effective interest rate method
is recognised in profit or loss.
66 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
1 Accounting policies continued. Derivative financial instruments The recoverable amount of receivables
Members’ capital. and hedging. carried at amortised cost is calculated as
The capital requirements of the group are The group uses derivative financial the present value of estimated future cash
determined from time to time by the instruments to provide an economic flows, discounted at the original effective
Board, following recommendations from hedge against its exposure to foreign interest rate (being the effective interest
the Executive Committee. Each member exchange and interest rate risks arising rate computed at initial recognition of
is required to subscribe a proportion of this from operational, financing and investment these financial assets). Receivables with
capital after taking into account any capital activities. In accordance with its treasury a short duration are not discounted. The
already contributed by the member to an policy, the group does not hold or issue recoverable amount of other assets is the
LLP or other entity (being a subsidiary of derivative financial instruments for trading greater of their fair value less costs to sell
the partnership) of which he is also a purposes. The derivative financial and value in use. In assessing value in
member. Hence, members’ capital of the instruments used do not satisfy the use, the estimated future cash flows are
group represents capital subscribed by criteria to be classified as hedging discounted to their present value using a
members of the partnership to either instruments and are treated as financial pre-tax discount rate that reflects current
the partnership or a subsidiary entity. assets or liabilities held for trading. market assessments of the time value of
money and the risks specific to the asset.
No interest is paid on capital. Derivative financial instruments are
recognised at fair value. Those with a An impairment loss is recognised
On leaving the partnership, a member’s positive fair value are classified within whenever the carrying amount of an
capital must be repaid within two months ‘Other investments’; derivative financial asset or its cash generating unit exceeds
of the leaving date, unless other instruments with a negative fair value are its recoverable amount. Impairment losses
arrangements have been agreed between classified within ‘Trade and other are recognised in the income statement.
the member and the Executive Committee. payables’. Attributable transaction costs An impairment loss in respect of a
are recognised in profit or loss when financial asset carried at amortised cost
Members’ capital is therefore considered
incurred. Subsequent gains or losses on or one classified as available-for-sale is
a liability and is stated at its nominal value,
remeasurement of fair value are reversed if the subsequent increase
being the amount repayable.
recognised immediately in profit or loss. in recoverable amount can be related
This classification was reviewed in light The fair value of interest rate swaps is the objectively to an event occurring after
of the amendment to IAS 32 and IAS 1 estimated amount that the group would the impairment loss was recognised. In
regarding the classification of a puttable receive or pay at the year end, taking into respect of other assets, an impairment
financial instrument. However, the terms account current interest rates and the loss is reversed when there is an indication
of members’ capital do not meet all of the current creditworthiness of the swap that the impairment loss may no longer
criteria to be met in order to justify counterparties. The fair value of forward exist and there has been a change in the
classification as an equity instrument exchange contracts is their market price estimates used to determine the
and classification as a liability at the year end. recoverable amount.
remains appropriate.
Unbilled amounts for client work. An impairment loss is reversed only to
Amounts due to and from members. Unbilled amounts for client work relate to the extent that the asset’s carrying
Non-current amounts due to members service contract receivables on completed amount does not exceed the carrying
are initially recognised at fair value, based work where the fee has yet to be issued amount that would have been determined,
upon the estimated present value of or where the service contract is such that net of depreciation or amortisation, if no
future cash flows discounted at the the work performed falls into a different impairment loss had been recognised.
market rate of interest at the year end. accounting period. Unbilled amounts for Impairment losses in respect of goodwill
Subsequent to initial recognition, non- client work are stated at cost plus profit cannot be reversed.
current amounts due to members are recognised to date (in accordance with
the revenue accounting policy above) less Leases.
recorded at amortised cost.
provision for foreseeable losses and net Operating lease rentals are charged to the
Current amounts due to and from of amounts billed on account. income statement on a straight-line basis
members are stated at their nominal value over the period of the lease. Lease
as this approximates to amortised cost. Impairment. incentives received are recognised in the
The carrying amounts of the group’s income statement as an integral part of
assets (except employee benefit and the total lease expense.
deferred tax assets) are reviewed at each
year end to determine whether there is Minimum lease payments made under
any indication of impairment. If any such finance leases are apportioned between
indication exists, the assets’ recoverable the finance expense and the reduction of
amounts are estimated. For goodwill the the outstanding liability. The finance
recoverable amount is estimated at each expense is allocated to each period during
year end. the lease term so as to produce a constant
periodic rate of interest on the remaining
balance of the liability.
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Notes
forming part of the consolidated financial statements continued
1 Accounting policies continued Separate disclosure is not made of insured Allocation of profits and drawings.
Provisions. costs and related recoveries on the The allocation of group profits to those
A provision is recognised when the grounds that such disclosure would be who were members of the partnership
group has a present legal or constructive seriously prejudicial to the position of the during the financial year occurs at the
obligation as a result of a past event and group in any dispute with other parties. discretion of the Board following
it is probable that an outflow of economic finalisation of the annual financial
benefits will be required to settle the Employee benefits. statements. As is permitted by the
obligation. If the effect is material, The group operates various defined Limited Liability Partnerships Regulations
provisions are determined by discounting contribution pension plans for which and the Partnership Agreement, allocated
the expected future cash flows at a pre- the charge for the year represents the profits may not necessarily represent all
tax rate that reflects current market contributions payable to the plans in the profits arising in a particular financial
assessments of the time value of money respect of the accounting period. An year, if the Board considers it appropriate
and, where appropriate, the risks specific accrual or prepayment is included in to retain profits or to allocate profits
to the liability. the statement of financial position to the previously retained.
extent to which such costs do not equate
Provision for onerous contracts is to the cash contributions paid in the year. During the year, members in certain
recognised when the expected benefits countries receive salary under their
to be derived by the group from a contract The group also operates several defined separate contracts of employment with
are lower than the unavoidable cost of benefit pension plans including three subsidiary legal entities and are entitled
meeting its obligations under the contract. closed plans. Two of these plans are to bonuses under the same contracts of
Provision is made for the present value of closed to new entrants and provide employment. Members in other countries
foreseeable rental commitments in respect benefits on final pensionable pay whilst receive remuneration by rendering
of surplus property, after offsetting any the other is closed to new entrants and charges for their services personally or
future sub-letting income that could be to current service and provides benefits from a company under their control. Such
earned. Surplus property includes premises based on average pensionable pay. The items are considered to be expenses of
which will become redundant as a result of group’s net obligations in respect of its the group and are treated as ‘Personnel
steps to which the group is committed. defined benefit plans are calculated costs’ in the income statement. Amounts
separately for each plan by estimating the remaining unpaid at the end of the year
The group has conditional commitments amount of future benefit that employees in respect of such remuneration are
to pay annuities to certain former have earned in return for their service in classified as ‘Amounts due to members’.
members (and dependants) of KPMG in the current and prior periods; that benefit
the UK. These annuities are payable only is discounted to determine its present During the year, members working within
out of the profits of KPMG LLP, on which value, and the fair value of plan assets (at KPMG LLP receive monthly drawings,
they constitute a first charge. The present bid price) is deducted. The liability discount and from time to time, additional profit
value of the best estimate of the expected rate is the yield at the year end on AA distributions. The level and timing of the
liabilities for future payments to retired credit rated bonds that have maturity additional distributions are decided by the
members or their dependants is provided dates approximating to the terms of each Executive Committee, taking into account
in full, gross of attributable taxation that plan’s obligations. The calculations are cash requirements for operating and
is deducted by KPMG from payments to performed by qualified actuaries using investing activities. Similarly, drawings
annuitants, as a charge against income the projected unit credit method. or distributions may be paid by the
at the point at which the contractual right partnership. All such drawings and profit
arises. Any changes in the provision for When the benefits of a plan are improved, distributions to members represent
former members’ annuities arising from the portion of the increased benefit relating payments on account of current year
changes in former members and their to past service by employees is recognised profits and are reclaimable from members
dependants or in financial estimates and as an expense in the income statement on until profits have been allocated. Any over-
actuarial assumptions are recognised in a straight-line basis over the average period distribution of profits during the year is
the income statement. The unwinding of until the benefits become vested. To the also recoverable from members.
the discount is presented in the income extent that the benefits vest immediately,
statement as a ‘Financial expense’. The the expense is recognised immediately in Pending the allocation of profits and their
payment of former members’ annuities the income statement. division between members, therefore,
is shown as a movement against drawings and on-account profit distributions
Actuarial gains and losses are recognised paid to such members during the year are
the provision.
in the period in which they occur, in other shown as ‘Amounts due from members’.
A substantial level of insurance cover comprehensive income. Unallocated profits are shown in Equity as
is maintained in respect of professional ‘Other reserves’. In both cases, necessarily,
Surpluses are recognised on defined
negligence claims. This cover is principally amounts that may be determined as due
benefit pension plans only to the extent
written through mutual insurance from and attributable to members who
that they are considered to be recoverable
companies. Premiums are expensed as retired from the partnership or KPMG LLP
by the group, taking account of future
they fall due. Where appropriate, provision in the year may be included.
service by members of, and contributions
is made for the uninsured cost to the
payable to, the relevant plan.
group of settling negligence claims.
68 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
Employee benefits.
The net defined benefit liabilities of the group’s pension plans of €244 million are based on certain assumptions as to mortality (see
note 21), based on current published tables, and discount rates reflecting current market trends in each country. If either were to
change, there is a risk that there would be further variance in the actuarial gains and losses.
In addition, the average expected returns on assets in each plan reflect the anticipated balance in each plan’s investment portfolio
based on current investment decisions. If the investment strategy were to change, there is a risk that there would be further variance
between the actual and expected return on assets and hence in the actuarial gains and losses. As all actuarial gains and losses are
recognised in these financial statements, the resulting provision for employee benefits may also differ from that disclosed in these
financial statements. Increases of 0.25% in the assumed discount rates would reduce the present value of the plans’ obligations, and
hence the net liabilities recognised in the statement of financial position by approximately €55 million.
Claims.
The group from time to time receives claims in respect of professional negligence. It defends such claims vigorously but makes
provision for the possible amounts considered likely to be payable, up to the deductible under the group’s related insurance
arrangements. A different assessment of the settlement prospects of each case, or of the possible cost involved may result in a
different provision and cost.
Property provisions.
Property provisions of €45 million are calculated based on certain assumptions regarding the ability to sub-let the property, specifically
the amount of time it may take to sub-let and the rental income that may be obtained. A different assessment of the market conditions
and sub-lease income achievable may result in a different value being determined for such provisions.
Acquisition accounting.
Under IFRS 3, ‘Business Combinations’, the acquirer is required to determine fair values (reflecting conditions at the date of the
business combination and its terms) for the identifiable assets, liabilities and contingent liabilities acquired. Within such items will be
intangible assets reflecting the current value of anticipated income streams from the customer relationships and the open order book
of the party acquired. In assessing the value of such items, the group has to make assumptions on matters such as the future profits
likely to arise after reflecting charges for the services of the workforce (including the services of those individuals who separately are
members of the partnership) and for the use of the KPMG brand, as well as the anticipated period over which benefits from existing
customer relationships may endure.
A different assessment on these matters may have resulted in a different value being ascribed to the assets and hence to the goodwill
capitalised, or the negative goodwill reflected in the income statement. For example, a 5% reduction in the assumed cost of members’
services would have increased the recognised fair value of intangible assets of the acquired entities by €5 million. A 5% increase in the
charge assumed for the use of the KPMG brand would reduce the recognised fair values of intangible assets of the acquired entities by
€3 million.
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Notes
forming part of the consolidated financial statements continued
Similarly, the basis for co-working with those entities in Belgium and Turkey not controlled by the group, and the precise terms of the
related merger documentation, were not drafted to clarify control within the context of the relevant accounting standard. The group
has assessed that certain entities fall to be regarded only as associates over which significant influence is exercised and that other
entities are subject to neither control nor significant influence, even where these entities constitute integral parts of the operations
of the KPMG member firms in these countries.
3 Segmental reporting.
Segment information is presented in respect of the group’s segments, reflecting the group’s principal management and internal
reporting structures.
The group is managed internally through the functions of Audit, Tax, Transactions & Restructuring (T&R), Risk & Compliance (R&C)
and Performance & Technology (P&T) and these are therefore considered as separate operating segments for the purposes of
presenting segment information under IFRS 8. T&R, R&C and P&T previously made up one Advisory operating segment and
comparative figures have been restated accordingly.
The segments are identified for internal reporting purposes according to the nature of services provided; principal services provided
by each segment include:
Audit:. Provision of statutory and regulatory attestation services, advice in compliance with changing reporting and regulatory
requirements, and non-statutory assurance services.
Tax:. Advice and compliance assistance in relation to tax, remuneration planning and pensions.
T&R:. Deal support from pre-deal evaluation to completion including strategy, due diligence, debt and equity advice, valuations,
separation and integration; provision of restructuring and recovery advice, including corporate and personal insolvency;
financial advice on public and private transactions including mergers and acquisitions, flotations and valuations.
R&C:. Provision of advice on embedding governance, risk management and internal controls and on compliance with changing
regulatory requirements; provision of accounting, investigation and business skills to assist clients involved in contentious
financial matters.
P&T:. Advice and support to improve business performance through transforming operations, business intelligence and finance
transformation, working capital and cash management, revenue enhancement and cost optimisation, IT enabled
transformation, embedding risk and regulatory management and deal services.
70 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
The information reported internally for each of gross revenue, profits and assets includes data for various entities which are not
controlled by ELLP within the definition of IAS 27 ‘Consolidated and Separate Financial Statements’. Additionally, for entities whose
functional currency is not the euro, a fixed exchange rate from their local currency to euros is set at the beginning of each financial
year and this rate is used in reporting actual, budget and prior year data, thus eliminating the impact of exchange rate movements:
this approach does not comply with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ and a foreign exchange adjustment
is required to reconcile to the financial statements.
In addition, certain other adjustments are made to revenue reported in the financial statements compared to that reported internally
and certain judgements taken in respect of revenue on incomplete contracts may differ for financial statements purposes.
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forming part of the consolidated financial statements continued
Costs not allocated to segments represent the costs of central support and infrastructure such as property and IT costs, marketing,
training and other general overhead expenses (including depreciation, amortisation and other non-cash items). These are not directly
controllable by the segments and are not allocated to them in the group’s internal reporting. Allocation of such items to the segments
would involve subjective assessments and it is not therefore considered appropriate.
Assets attributed to the segments for internal reporting purposes comprise trade receivables and unbilled amounts for client work.
All other assets, including non-current assets, balances with members and cash are controlled centrally and are not allocated across
segments. There is no internal reporting of liabilities by segment; hence no segmental disclosures are given.
The reflection of entities not controlled by ELLP and the impact of foreign exchange adjustments, the move to five segments and
certain revisions to the allocation of costs between segments and central costs all represent changes to the internal presentation
of segmental information compared to that applying in 2009. Comparative figures have been restated accordingly.
Geographical disclosures.
Revenue from external clients and non-current assets (excluding deferred tax assets, employee benefits and investments held-to-
maturity) by geographical segment are as set out below. Both revenue and non-current assets relate to entities situated in each country.
Geographical segment
Revenue Non-current assets
2010 2009 2010 2009
Millions Euros €m €m €m €m
United Kingdom 1,843 1,834 551 450
Germany 1,187 1,241 65 71
Netherlands 436 – 33 –
Other countries 728 472 84 50
Intercountry eliminations (129) (52) (44) (30)
4,065 3,495 689 541
• KPMG member firms in UK, Germany, Switzerland – 2010: full year; 2009: full year;
• Certain entities of the KPMG member firm in Spain – 2010: full year, entities providing tax and advisory services, and three months,
entity providing audit services; 2009: full year, entities providing tax and advisory services;
• Certain entities of the KPMG member firm in Belgium – 2010: full year; 2009: six months;
• KPMG member firm in the Netherlands providing audit and advisory services – 2010: 11 months; 2009: nil;
• KPMG member firm in Luxembourg – 2010: full year, entity providing tax services, and seven months, entities providing audit and
advisory services; 2009: nil;
• KPMG member firm in the Commonwealth of Independent States (CIS, comprising entities in Russia, Ukraine, Armenia, Georgia,
Kazakhstan and Kyrgyzstan) – 2010: eight months; 2009: nil.
Major clients.
The group has no reliance on any one client – no more than 1.6% (2009: 1.4%) of group revenue is attributable to the largest client.
72 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
4 Pro-forma information.
The following data provides pro-forma information, presented as if the group had existed in its form at 30 September 2010 through
the two years ended on that date – that is, including KPMG Luxembourg, KPMG CIS, KPMG Netherlands and the relevant entities in
Belgium and Spain throughout.
Pro-forma revenue and growth rates (at constant exchange rates) by national sub-group for the year ended 30 September 2010 were:
2010
Millions Euros €m %
United Kingdom 1,843 –
Germany 1,187 (4)
Netherlands 477 (8)
Other countries 914 4
Inter-country eliminations (141) –
4,280 (3)
These pro-forma revenues and growth rates (at constant exchange rates) can be analysed by function as follows:
2010
Millions Euros €m %
Audit 1,787 (7)
Tax 865 (2)
T&R 716 (4)
R&C 455 (8)
P&T 457 17
4,280 (3)
On a pro-forma basis, as if the group had existed through the two years ended 30 September 2010, average full-time equivalent
headcount would have been 28,190 (2009: 29,266) – a fall of 4%.
Market-industry revenues.
Pro-forma revenue by market-industry is given below, with growth rates compared to 2009 on constant exchange rates:
2010
Millions Euros €m %
Consumer & Industrial Markets 1,469 (8)
Financial Services 1,259 4
Infrastructure, Government & Healthcare 971 (1)
Information, Communications & Entertainment 451 (17)
Private Equity 130 20
4,280 (3)
2010 2009
Millions Euros €m €m
Charges to other KPMG International member firms 44 45
Support cost charges to non-group KPMG entities within ELLP countries 35 31
Rental income 21 11
Other items 56 33
156 120
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forming part of the consolidated financial statements continued
2010 2009
Full-time Full-time
Millions Euros equivalent equivalent
Members 1,362 1,114
Other personnel 24,451 19,783
25,813 20,897
The average numbers of members and other personnel by function were as follows:
2010 2009
Full-time Full-time
Millions Euros equivalent equivalent
Audit 9,942 6,965
Tax 5,005 4,987
T&R 2,668 2,835
R&C 2,481 1,907
P&T 2,260 1,492
Central 3,457 2,711
25,813 20,897
The aggregate employment costs of personnel are set out below. These include those costs of members receiving salary and
bonuses under contracts of employment or service contracts with subsidiary entities but exclude amounts in respect of members
receiving an allocation of profit of the partnership or KPMG LLP.
Employment costs
2010 2009
Millions Euros €m €m
Salaries (including bonuses) 2,104 1,717
Social security costs 178 141
Cost of employee benefits (note 21) 107 90
Personnel costs per income statement 2,389 1,948
Net financing cost charged to the income statement in respect
of defined benefit pension plans 3 2
Amounts recognised in the statement of comprehensive
income in respect of defined benefit pension plans 183 164
Total personnel related costs 2,575 2,114
Amounts totalling €220,000 were payable to the group auditors, Grant Thornton, for audit services, in respect of the partnership
and the consolidated financial statements (2009: €270,000). A further €856,000 (2009: €636,000) was payable to the group auditors
and €66,000 (2009: €57,000) payable to other auditors in respect of subsidiary entities’ financial statements. In addition, the group
auditors received €36,000 (2009: €45,000) for the audit of certain of the group pension plans. The group auditors and their associates
did not provide any non-audit services during either year.
74 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
The total interest income for financial assets that were not classified as fair value through profit or loss was €5 million (2009: €7
million). The total interest expense for financial liabilities that were not classified as fair value through profit or loss was €3 million
(2009: €3 million).
9 Business combinations.
The detail set out below provides information required under IFRS 3 ‘Business Combinations’ for those mergers and acquisitions
occurring during the year ended 30 September 2010. If the mergers and acquisitions set out below had each occurred on 1 October
2009, consolidated revenue and profit would have been €4,280 million and €502 million respectively.
Mergers.
Mergers – year ended 30 September 2009.
During the year ended 30 September 2009, the partnership acquired all the shares in certain entities in the KPMG member firms in
Spain and Belgium. As for previous mergers within the group, these mergers met the definition of a business combination under IFRS
3 and were presented as acquisitions by the partnership. Summary details of those mergers are as follows:
• Spain: the partnership paid €4 million, satisfied by €1 million members’ capital in the partnership and €3 million cash, in exchange
for net identifiable assets, liabilities and contingent liabilities of €4 million.
• Belgium: the partnership paid €2 million, satisfied in members’ capital in the partnership, in exchange for net identifiable assets,
liabilities and contingent liabilities of €(5) million. Goodwill of €7 million arose on the acquisition of entities in Belgium (see note 12).
• Call options were granted over shares in the entities in Spain and Belgium providing audit services and entities in Belgium providing
tax and accounting services: these options were not yet exercisable in 2009.
• With the exception of Turkey (see (c) below), the mergers each met the definition of a business combination under IFRS 3 and are
therefore presented as acquisitions by the partnership.
H
owever, the financial arrangements agreed amongst the members in respect of each merger do not fall easily within the
considerations that IFRS 3 requires be applied to commercial acquisitions. In particular, although the partnership in most cases has the
power to determine how the profits of each of its subsidiary national firms are to be distributed, members will in practice continue to
be largely remunerated from the profits arising in the country in which they are based. This will be as salaries or bonuses under their
local contracts of employment or service contracts or, in the UK and for any future countries whose structure is that of a partnership,
as profit shares, with no differentiation made between remuneration for services to the group and return on capital subscribed.
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forming part of the consolidated financial statements continued
• Call options have been granted over certain shares but are not yet exercisable. However, no value is attributed to these options as the
cost to the group of exercising these options does not change over time, nor does the fair value of the assets of the entities being
acquired, since profits (or losses) generated between the date of the mergers and the date of exercising the options will accrue to
the partners in each country. Hence although the options fall to be treated as derivative instruments, they have negligible fair value.
• Pre-acquisition carrying amounts have been determined from accounts of each acquired entity as at the date of acquisition under
applicable adopted IFRSs. The values of assets, liabilities and contingent liabilities recognised on acquisition are their estimated fair
values which approximated to their pre-acquisition carrying amounts in nearly all cases. The following fair value adjustments were
considered for each merger:
– Intangible assets for the current value of anticipated income streams resulting from customer relationships, framework contracts
and order books. This calculation (in accordance with the accounting policies in note 1) reflects charges for the use of the KPMG
brand (assessed against comparable publicly available data for entities in the service industries), for the workforce and working
capital of the entities acquired (net of applicable taxes) and a charge for the services of equity partners which excludes their
estimated return on capital. It assumes an appropriate future average ‘churn rate’ for customer relationships, normally of 10 years.
The resulting cash flows were discounted to current values using an estimated weighted average cost of capital.
– No value is ascribed to use of the KPMG brand in any country as neither the partnership nor the entity acquired controls these rights.
– Fair value reviews were carried out on a number of other liabilities, including contingent liabilities for unrecognised professional
negligence claims, and on assets, including the carrying value of contingent fee assignments.
• Where negative goodwill arises, this is normally attributable to undistributed reserves. Positive goodwill is normally attributable to
the skills and knowledge of the work force and the synergies expected to be achieved from integrating the acquired entity, which
are not assets recognisable under adopted IFRSs.
a) Netherlands.
On 28 October 2009, the partnership obtained control over KPMG NV, the parent company for the KPMG International member firm
providing audit and advisory services in the Netherlands (KPMG Netherlands). The separate KPMG International member firm
providing tax services in the Netherlands, KPMG Meijburg & Co, was not involved. Consideration was in the form of ‘depository
receipts’, financial instruments that rank as current liabilities of the group alongside other members’ capital, totalling €20 million.
The merger had the following effect on the group’s assets and liabilities at acquisition:
Pre-acquisition Fair Recognised
carrying value on
amounts adjustments acquisition
Millions Euros €m €m €m
Property, plant and equipment 23 9 32
Intangible assets – 9 9
Trade and other receivables 104 – 104
Other receivables 23 – 23
Cash and cash equivalents 62 – 62
Trade and other payables (180) (9) (189)
Provisions (12) – (12)
Net identifiable assets, liabilities and contingent liabilities 20 9 29
Attributable to non-controlling interests (9)
Goodwill on acquisition –
Consideration paid, satisfied in the form of depository receipts 20
76 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
Amounts attributable to non-controlling interests are based on the fair values of the net assets acquired.
Revenue and profit after taxation of €436 million and €1 million respectively for the 11 months ended 30 September 2010 are included
within these consolidated financial statements in respect of KPMG Netherlands.
Where less than 100% of shares are held, the remaining shares are held by local partners as a result of local legislative requirements
with call options granted to the group (but not currently exercisable). In each case, the partnership nevertheless has the right to
control these entities under the agreements in place and they are considered to be subsidiaries under IFRS.
The non-controlling interests in KPMG CIS were valued at €2 million at the acquisition date based on the fair values of the net assets
acquired. This value represents the fair value of those interests at the acquisition date which is based on the terms set out in the
agreements. Whilst the non-controlling interests are entitled to a share of the capital of these entities, they do not have rights to a
share in profits post-acquisition.
Furthermore, the group merged with the KPMG member firm in Luxembourg. The merger completed on 6 November 2009,
the partnership acquiring the following:
• 50% of the entity providing tax services. The partnership also has exercisable options over the remaining 50% of the shares.
The entity is therefore considered to be a subsidiary under IFRS from 6 November 2009.
• 4 9% of the entities providing audit and advisory services. The partnership later exercised its options to acquire the remaining
51% of the shares following enactment in Luxembourg of the EU 8th Directive. In this case, the partnership is not considered
to have had control prior to the exercise of the options on 22 February 2010 and so the entity is considered to have been an
associate of the group until that date.
The non-controlling interest of 50% of the entity providing tax services was valued at €1 million at the acquisition date based on the
fair value of the net asset acquired. This value represents the fair value of the interest at the acquisition date which is based on the
terms set out in the agreement. Whilst the non-controlling interests are entitled to a share of the capital of this entity, they do not have
rights to a share in profits post-acquisition.
At the date of acquisition of the remaining 51% of the entities providing audit and advisory services, the fair value of the equity
interest was €nil which was also its equity accounted value at that date.
In July 2010, the EU 8th Directive was enacted into Spanish law. The partnership had been granted call options in 2009 over all the
shares in KPMG Auditores SL, the company within KPMG Spain which provides audit services. Following the legislative change,
these options became immediately exercisable and hence this company fell to be treated as a subsidiary from that date. The options
were not in fact exercised during the year and hence the group accounts reflect a negative non-controlling interest of 100% of this
company, valued at €12 million, being the net liabilities of the company at the date at which the company became a subsidiary.
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forming part of the consolidated financial statements continued
The trade receivables are net of impairment provision of €9 million for those receivables that were expected to be uncollectable at the
acquisition date.
Amounts attributable to non-controlling interests are based on the fair values of the net assets acquired, and represent €(12) million in
respect of KPMG Auditores, €2 million in respect of KPMG CIS and €1 million in respect of KPMG Luxembourg.
Revenue and profit of €253 million and €nil respectively is included within these consolidated financial statements in respect of KPMG
CIS, KPMG Luxembourg and KPMG Auditores SL.
c) Turkey.
Also during the year, the KPMG member firm in Turkey (KPMG Turkey) merged with ELLP. However, the partnership is not permitted
to own shares in the existing entities within KPMG Turkey as a result of local regulatory constraints. Instead, the partnership has call
options over 100% of the shares, exercisable only in the event that local law is changed, but is considered to have significant influence
over the entities under the agreements in place. Hence, these entities are considered to be associates under IFRS, albeit with a nil
shareholding. In acquiring those call options, the group assumed certain liabilities in respect of an external loan payable by the entities
in Turkey. Hence, the call options have a carrying value equivalent to this loan payable, being €1 million.
In addition, a new entity has been set up in Turkey, in which the partnership holds 100% of the shares, and through which it is
intended that new advisory work will be provided. This entity had not commenced trading at 30 September 2010.
Acquisitions.
During the year, KPMG UK acquired 100% of the shares in two UK companies providing advisory services, Analitica Limited and
KPMG IT Advisory Limited (then called DNV Global IT Services Limited) for consideration of €2 million and €0.3 million respectively.
Intangible assets of €2 million relating to customer relationships were recognised in accounting for these acquisitions.
78 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
10 Tax expense.
Group companies are subject to a variety of income taxes based on their taxable profits at rates between 25% and 34%.
Limited liability partnerships, however, are not subject to taxation; rather their members are subject to personal income tax, mainly in
the UK, which is a personal liability of the members individually.
2010 2009
Millions Euros €m €m
Current tax expense
Current year 16 20
Adjustment in respect of prior years 1 1
Deferred tax expense/(credit) (note 14) 2 (5)
19 16
Compensation payment to be received from members of KPMG LLP (9) (10)
Total tax expense in income statement 10 6
Corporation tax charges in the UK arise largely as a result of the impact of UK transfer pricing legislation. The compensation payment is
a payment made by the members of KPMG LLP in order to compensate the UK subsidiaries for this increased corporation tax charge.
The group is required under IAS 12 ‘Income taxes’ to present the following tax reconciliation in respect of group profits:
2010 2009
Millions Euros €m €m
Profit before taxation 512 452
Less profit arising in limited liability partnerships, on which tax
is payable by the members personally (473) (431)
Profit before taxation arising in group companies 39 21
Tax at 30% (2009: 30%) being the average rate of corporate
taxes levied on the profits of group companies 12 6
UK corporation tax arising on UK transfer pricing arrangements 9 10
Impact of tax exempt items, including negative goodwill and differences
between profits under adopted IFRSs and profits under local tax legislation,
net of relevant deferred tax (2) –
Taxes payable by subsidiary undertakings 19 16
Compensation payment to be received from members of KPMG LLP (9) (10)
Total tax expense in income statement 10 6
2010 2009
Millions Euros €m €m
Net change in fair value of available-for-sale financial assets – 1
Actuarial gains and losses on defined benefit pension plans (42) (22)
(42) (21)
Included in non-current assets is tax receivable of €12 million (2009: €14 million) which represents the current value of tax refunds in
Germany, receivable over seven years.
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Notes
forming part of the consolidated financial statements continued
Land and buildings at 30 September 2010 relate entirely to the group’s new leasehold premises at 15 Canada Square, London;
following the amendment to IAS 17 ‘Leases’, all the leasehold interests, including land, at Canada Square fall to be classified as a
finance lease, since it has a term of 999 years and so represents the majority of the useful economic life of the asset. Hence, the
prepayment of €40 million made under this lease in April 2009 has been reclassified from non-current receivables (see note 15). The
net book value of assets owned under a finance lease was €314 million (2009: €297 million). Additions to office furniture, fittings and
equipment relate largely to the fit-out of this new building.
Included in other payables is €3 million, the final payment under the finance lease, which is payable in October 2010.
80 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
12 Intangible assets.
Customer
relation Interally Purchased
ships and generated software
Goodwill similar items software and licences Total
Millions Euros €m €m €m €m €m
Cost
Balance at 1 October 2008 – 6 82 3 91
Acquisition of subsidiaries 7 4 2 2 15
Additions – – 31 – 31
Disposals – (3) (12) – (15)
Exchange movements – – (10) – (10)
Balance at 30 September 2009 7 7 93 5 112
Acquisition of subsidiaries – 28 – – 28
Additions – – 14 5 19
Disposals – (15) (10) (4) (29)
Exchange movements – – 4 – 4
Balance at 30 September 2010 7 20 101 6 134
Amortisation
Balance at 1 October 2008 – – 27 1 28
Charge for the year – 3 10 1 14
Disposals – (3) (12) – (15)
Exchange movements – – (3) – (3)
Balance at 30 September 2009 – – 22 2 24
Charge for the year – 17 9 5 31
Disposals – (15) (10) (4) (29)
Exchange movements – – – – –
Balance at 30 September 2010 – 2 21 3 26
Net book value
At 1 October 2008 – 6 55 2 63
At 30 September 2009 7 7 71 3 88
At 30 September 2010 7 18 80 3 108
Internally generated software mainly comprises components of the SAP-based ERP system, which have remaining amortisation
periods of six to eight years (2009: seven to eight years).
Goodwill was generated on the merger with certain entities of the KPMG member firm in Belgium (see note 9). The recoverable
amount of the goodwill has been determined using the ‘value in use’ basis; the recoverable amount is based on the anticipated profits
to be generated by these entities, assuming growth rates reflecting past experience but adjusted to reflect current market conditions.
No goodwill impairment arises.
2010 2009
Millions Euros €m €m
Fixed income securities 44 43
Shares in investment funds 13 12
Other investments 4 3
61 58
Included within other investments is €0.5 million (2009: €0.5 million) representing the group’s share of net assets of associates (see
note 27).
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Notes
forming part of the consolidated financial statements continued
14 Deferred taxes.
Recognised deferred tax assets and liabilities relating to the following assets and liabilities were:
Assets
Non-current assets
Intangible assets 2 (4) 3 (2)
Property, plant and equipment – (2) – (2)
Other non-current assets – (3) – (3)
Current assets
Trade receivables – (3) – (1)
Receivables for unbilled services – (17) – (13)
Securities – (1) – (1)
Liabilities
Non-current liabilities
Pensions and similar obligations 89 – 47 –
Other provisions 16 (1) 15 (1)
Current liabilities
Other provisions – (4) – (5)
Other liabilities 6 (7) 7 (1)
Offsetting (24) 24 (24) 24
Offset of tax losses available to be carried forward 2 – 1 –
Balance at 30 September 91 (18) 49 (5)
Deferred tax assets have not been recognised in respect of tax losses totalling €25 million (2009: €7 million).
Assets
Non-current assets
Intangible assets 1 (5) 2 – (2)
Property, plant and equipment (2) – – – (2)
Other non-current assets (3) – – – (3)
Current assets
Trade receivables (1) (3) 1 – (3)
Receivables for unbilled services (13) 2 (6) – (17)
Securities (1) – – – (1)
Liabilities
Non-current liabilities
Pensions and similar obligations 47 – – 42 89
Other provisions 14 – 1 – 15
Current liabilities
Other provisions (5) – 1 – (4)
Other liabilities 6 (6) (1) – (1)
Offset of tax losses available to be carried forward 1 1 – – 2
Total 44 (11) (2) 42 73
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Notes
forming part of the consolidated financial statements continued
In 2009, a €40 million property prepayment relating to the lease over land at 15 Canada Square, London was classified as a non-current
receivable. This has been reclassified to property, plant and equipment following the amendment to IAS 17 ‘Leases’ (see note 11).
Group trade receivables are shown net of impairment losses amounting to €27 million (2009: €18 million); the movement for the year
is recognised in ‘Other operating expenses’. An aged analysis of overdue trade receivables and movement in the allowance for
impairment in respect of trade receivables is given in note 23.
17 Other investments.
2010 2009
Millions Euros €m €m
Bonds 44 39
Shares in investment funds 30 29
Fixed income securities 14 14
Equities 14 14
Derivative financial assets 1 –
103 96
Included in accruals are amounts payable to personnel (excluding members) in respect of bonuses.
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forming part of the consolidated financial statements continued
20 Provisions.
Obligations to
employees
Property (other than
Annuities provisions pensions) Other Total
Millions Euros €m €m €m €m €m
Balance at 1 October 2009 57 38 41 64 200
Acquisition of subsidiaries – 5 6 1 12
Utilised during the year (4) (3) (26) (5) (38)
Transfers – – 5 – 5
Income statement:
– Provisions made during the year 7 4 22 10 43
– Provisions released during the year – – – (11) (11)
– Unwinding of discounted amounts 3 – 3 – 6
Exchange differences 3 1 – 3 7
Balance at 30 September 2010 66 45 51 62 224
Non-current 62 35 51 37 185
Current 4 10 – 25 39
66 45 51 62 224
The provision for former members’ annuities reflects conditional commitments to pay annuities to certain former members (and
dependants) of KPMG LLP or its predecessor partnership, and is recorded gross of basic rate tax (see note 1).
2010 2009
Millions Euros €m €m
Within 12 months of the year end 4 4
Between one and five years 15 14
Between five and fifteen years 26 22
In more than fifteen years 21 17
66 57
The principal actuarial assumptions used in assessing the provision for former members’ annuities are that increases in annuities
payable follow the retail prices index as this is the specific obligation set out in the underlying commitment (2010: 3.35%; 2009:
3.25%) and that, after application of mortality rates, the resulting amounts are discounted at 4.95% (2009: 5.6%).
The mortality tables used for the former members’ annuities provision at both 30 September 2010 and 2009 were consistent with
those applied in respect of the UK defined benefit pension plans (see note 21).
Property provisions represent the cost of office space which is not currently used by the group or will become redundant as a result
of steps to which the group is committed. The net obligation under such leases has been provided for. Property provisions of €10
million (2009: €1 million) will be utilised within 12 months and the balance is expected mainly to be utilised within the next five years.
Obligations to employees mainly comprise obligations arising in Germany from part-time early retirement working arrangements
which are expected to be utilised within four to eight years.
Other provisions include assessments of possible amounts payable in respect of certain operational risks but also reflect provisions in
respect of negligence claims brought against the group by third parties. Where appropriate, provision is made for the uninsured cost
(including related legal costs) to the group of settling negligence claims. Separate disclosure is not made of insured costs and related
recoveries on the grounds that such disclosure would be seriously prejudicial to the commercial interests of the group. These
provisions are expected mainly to be utilised within five years.
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Notes
forming part of the consolidated financial statements continued
21 Employee benefits.
The cost of employee benefits included within personnel costs for the year was:
2010 2009
Millions Euros €m €m
Contributions to defined contribution pension plans 77 62
Current service cost for defined benefit pension plans 30 28
Cost of employee benefits 107 90
The net financing cost of €3 million (2009: €2 million) relating to defined benefit pension plans is also considered to be a part of the
net cost of employee benefits.
The closing net assets and liabilities in respect of employee benefits were as follows:
Assets Liabilities
2010 2009 2010 2009
Millions Euros €m €m €m €m
Capitalised value of reinsurance policies 2 2 – –
Capitalised value of risk insurance policies 8 8 – –
UK defined benefit plans – – (147) (93)
German defined benefit plans – 18 (87) –
Swiss defined benefit plans – – (20) (12)
10 28 (254) (105)
The capitalised value of pension-related risk insurance policies relates to claims against an insurance company which provides cover
under certain risk insurance policies for certain employees. On the death of an employee before reaching pensionable age, KPMG AG
is obliged to pay pre-defined lump sums to surviving dependants. The insurance company reimburses KPMG AG for all such
payments made. The reimbursable amounts are recognised as an asset at the level of the corresponding liability which is reflected in
the defined benefit obligation below.
The group also has a defined contribution plan operated in the Netherlands. This plan is open to all employees. The charge for the year
represents those contributions payable in respect of the accounting period.
Employers’ contributions paid in Germany under state social security legislation are made to separate legal entities which manage
such contributions and payments to current and future pensioners. Because KPMG AG has no future obligation to make good any
shortfalls in the funding of these entities beyond these fixed contributions, these payments meet the definition in IAS 19 of
contributions to a defined contribution pension plan and so fall to be disclosed above.
In Belgium, contributions are paid by each KPMG entity to insured pension schemes under terms that permit these schemes also to
be treated as defined contribution plans.
Group entities in Spain, Luxembourg and CIS do not operate any pension plans.
No contributions to the defined contribution pension plans were outstanding at the end of either financial year.
The KPMG Staff Pension Fund – pre-April 2000 fund (the pre-2000 fund) is a plan closed to new entrants and to current service,
providing benefits based on average salary. Contributions from members were paid up to 1 April 2000. The group’s contributions are
agreed between the group and the trustee based on advice from the independent actuary, Hewitt Bacon & Woodrow, derived from
triennial valuations using the attained age method; an agreed funding plan is in place.
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forming part of the consolidated financial statements continued
The principal actuarial assumptions (expressed as weighted averages) used for the valuations were as follows:
Actuarial assumptions.
UK plans German plan Swiss plan
2010 2009 2010 2009 2010 2009
percent percent percent percent percent percent
Discount rate 4.95 5.60 4.25 5.50 2.55 3.35
Future salary increases* 4.35 4.25 3.00 3.00 1.50 1.50
Increase in pensions in payment** 3.30 3.20 1.70 1.70 – 0.10
Inflation 3.35 3.25 3.00 3.00 1.30 1.30
The expected return on the plans’ assets was 6.2% (2009: 6.3%) for the UK plans, 4.6% (2009: 5.0%) for the German plan and 3.6%
(2009: 4.0%) for the Swiss plan, the differences reflecting the different mix of asset investments in each plan as detailed below and
reflecting different market rates of return in each country. The expected rates of return on plan assets are determined by reference to
relevant indices. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated
balance in the plans’ investment portfolios.
All plans have been valued using mortality assumptions which retain prudent allowance for future improvement in longevity. The
mortality tables used for the UK plans at both 30 September 2010 and 2009 were PNXA00 projected by year of birth for both current
and future pensioners, with an allowance made for future improvements via the medium cohort effect and a mortality improvement
floor (1.25% for males, 0.75% for females).
The German and Swiss plans at both 30 September 2010 and 2009 used UK PXA92 tables with an allowance for the short
cohort effect.
These tables lead to life expectancies for a pensioner retiring today at age 60 of 25.4 to 27.7 years (males) and 28.3 to 29.4 years
(females), and for a pensioner retiring at age 60 but now aged 45 of 26.2 to 29.7 years (males) and 29.0 to 30.6 years (females).
86 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
Movements in the present value of the funded defined benefit obligations for the plans were as follows:
The total current service costs of €30 million (2009: €28 million) are recognised in ‘Personnel costs’ in the consolidated income
statement. The total interest on obligations of €76 million (2009: €75 million) is charged to the income statement within
‘Financial expense’.
The total expected return on plan assets of €73 million (2009: €73 million) is recognised in ‘Financial income’ in the consolidated
income statement. The actual return on the plans’ assets was €51 million (2009: €62 million) for the UK plans, €17 million for the
German plan (2009: €19 million) and €18 million for the Swiss plan (2009: €7 million).
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forming part of the consolidated financial statements continued
Actuarial gains and losses arise as a result of a change in assumptions or represent experience adjustments. Actuarial gains and
losses are recognised in the statement of comprehensive income in the period in which they occur. Cumulative net actuarial losses
reported in the statement of comprehensive income since 1 October 2004, the transition date to adopted IFRSs, are €186 million
(2009: cumulative losses of €3 million).
The history of experience gains and losses while the relevant entities have been within the group is as follows:
Other matters.
The group expects to contribute approximately €51 million to its defined benefit pension plans in the next financial year. Apart from
these contributions, there were no other transactions between the group and the pension plans during the year.
Contributions of €2 million (2009: €2 million) were outstanding in respect of the Swiss plan at the end of the financial year.
Because taxation in LLPs is a personal liability of the individual members, no deferred tax on the UK pension plan balances falls to
be recorded in the group financial statements. However, deferred tax assets of €84 million in respect of the German plan’s obligations
(2009: €44 million) and €5 million in respect of the Swiss plan (2009: €3 million) are reflected in the group financial statements, as
shown in note 14.
The assets of the UK defined benefit plans are held separately from those of the group, administered by AON Trust Corporation
Limited as independent trustee. Non-current assets of the German pension plan have been transferred to KPMG Pension Trust e.V.
and KPMG Partner Vermögensverein e.V. The assets of the Swiss defined benefit plan are held within independent pension
foundations. The assets of the group’s defined contribution plans are held by independent trustees.
88 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
Equity also includes the fair value reserve arising on the revaluation of available-for-sale assets, and translation reserves, being those
exchange differences arising on the translation of non-euro subsidiaries.
Millions Euros €m
Balance at 1 October 2008 97
Capital introduced by members 14
Capital allocated in respect of acquisitions 2
Repayments of capital (7)
Exchange movements (7)
Balance at 30 September 2009 99
Capital introduced by members 33
Capital allocated in respect of acquisitions 20
Repayments of capital (16)
Exchange movements 3
Balance at 30 September 2010 139
2010 2009
Millions Euros €m €m
Amounts due from members 152 146
Amounts due to members: non-current (3) –
Amounts due to members: current (417) (194)
(268) (48)
Amounts due from members relate to drawings and on-account profit distributions paid to members of UK LLPs.
Amounts due to members that are classified as current liabilities relate to tax withheld from allocated profits for members of UK LLPs
and contractual amounts due to members in other group entities. Amounts due to members that are classified as non-current
liabilities relate to partner loans. In the event of a winding up of an LLP, amounts due to members may be set-off against amounts due
from members but such balances (and members’ capital) rank after other unsecured creditors. The amounts payable to members
from the member firms in other countries would rank either in preference to unsecured creditors or alongside unsecured creditors on
a liquidation of those entities.
23 Financial instruments.
Financial instruments held by the group arise directly from its operations. Members’ capital and amounts due to and from
members also fall to be treated as financial instruments. The main purpose of these financial instruments is to finance the operations
of the group. It is, and has been throughout the period under review, the group’s policy that no trading in financial instruments shall
be undertaken.
The group has exposure to market risk, credit risk and liquidity risk arising from its use of financial instruments. This note presents
information about the group’s exposure to each of the above risks and the group’s objectives, policies and processes for measuring
and managing risk.
The Board has overall responsibility for the establishment and oversight of the group’s risk management framework. The group’s
risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the group’s activities. The group, through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
Further quantitative disclosures are included throughout these consolidated financial statements.
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forming part of the consolidated financial statements continued
The group uses derivatives on a case-by-case basis in order to manage market risks. The group does not hold or issue derivative
financial instruments for trading purposes.
The group maintains currency cash balances and uses currency swaps or forward foreign exchange contracts in order to cover exposure
to existing foreign currency receivables and payables and also to committed future transactions denominated in a foreign currency.
In respect of other monetary assets and liabilities denominated in foreign currencies, the group ensures that its net exposure is kept to
an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
The primary goal of the group’s investment strategy is to maximise investment returns; management is assisted by external advisors
in this regard. In accordance with this strategy certain investments are designated at fair value through profit or loss because their
performance is actively monitored and they are managed on a fair value basis.
The group’s exposure to credit risk is influenced mainly by the individual characteristics of each client. Credit risk is monitored
frequently, with close contact with each client and routine billing and cash collection for work done.
The group establishes allowances for impairment that represent its estimate of incurred losses in respect of trade and other
receivables and investments. This allowance comprises a specific loss component that relates to individually significant items, and a
collective loss component. This component is established for groups of similar assets in respect of losses that have been incurred but
not yet identified and is determined from historical data in each country of payment statistics for similar financial assets updated for
current economic conditions.
Notes
forming part of the consolidated financial statements continued
2010 2009
Millions Euros €m €m
Trade receivables 779 536
Bank balances and cash deposits 309 270
Amounts due from members 152 146
Non-current loans and receivables 13 25
Other receivables 51 44
Amounts owed by other KPMG International member firms 27 35
Loans and receivables 1,331 1,056
Available-for-sale: shares in investment funds 43 41
Held-to-maturity: fixed income securities 58 57
Bonds 44 39
Equities 14 14
Derivatives 1 –
Fair value through profit and loss 59 53
Total financial assets 1,491 1,207
Unbilled amounts for client work 383 256
1,874 1,463
Impairment losses.
The ageing of receivables that were overdue at the reporting date was:
Gross Impairment Gross Impairment
2010 2010 2009 2009
Millions Euros €m €m €m €m
Trade receivables
Overdue 1–30 days 107 – 59 –
Overdue 31–180 days 125 3 79 3
More than 180 days 38 24 28 15
270 27 166 18
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
2010 2009
Millions Euros €m €m
Balance at 1 October 18 14
Acquisition of subsidiaries 14 2
Impairment loss recognised 5 8
Impairment loss reversed (11) (5)
Exchange differences 1 (1)
Balance at 30 September 27 18
Notes
forming part of the consolidated financial statements continued
The focus of the group’s treasury policy is to ensure that there are sufficient funds to finance the business. Surplus funds are invested
according to the assessment of rates of return available through the money market or from bonds or equities.
The Treasury department monitors the group’s significant cash positions daily and it is the group’s policy to use finance facilities or to
invest surplus funds efficiently. Limits are maintained on amounts to be deposited with each banking counterpart and these are
reviewed regularly in the light of market changes.
The group has access to committed overdraft and revolving credit facilities which are drawn down as required.
The group has the following non-derivative financial liabilities, measured at amortised cost:
2010 2009
Millions Euros €m €m
Accruals 509 408
Amounts due to members (current and non-current) 420 194
Short-term bank borrowings 181 158
Members’ capital 139 99
Other payables 106 72
Trade payables 45 33
Amounts due to other KPMG International member firms 20 20
Other non-current liabilities 7 9
1,427 993
The group’s only financial liability that is interest bearing arises in respect of the short-term bank borrowings (see below). Hence, the
contractual cash flows in all cases equal the carrying amount. Trade payables and accruals, amounts due to other KPMG International
member firms and amounts due to members – current – are repayable within one year. As set out in the accounting policies,
members’ capital is repayable within two months of each member’s leaving date. Other non-current liabilities, including non-current
amounts due to members, are repayable within two to five years.
Committed borrowing facilities of €515 million (2009: €503 million) were available at 30 September 2010 to the group. Actual amounts
drawn were €181 million (2009: €158 million). Of these facilities, €20 million (2009: €68 million) expires in one year or less, revolving
credit facilities of €466 million (2009: €396 million) expire in four years and €29 million (2009: €39 million) had no fixed expiry date.
Although the revolving facilities expire in four years, the short-term bank borrowings drawn from time to time under the facilities usually
have a maximum term of three months. The availability of these facilities was dependent on certain conditions, including a minimum
level of members’ capital, all of which were satisfied at 30 September 2010 and 2009. The revolving credit facility is secured on the
lease of 15 Canada Square, London; the remaining facilities are unsecured. Certain of these facilities are available to all entities within
KPMG Belgium, including those not consolidated within the group.
2010 2009
Millions Euros €m €m
Fixed rate instruments
Securities 58 57
Bonds 44 39
Loans 4 6
106 102
Variable rate instruments
Short-term bank borrowings (181) (158)
Bank balances and cash deposits 309 270
Loans – 15
128 127
92 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
The net bank balances and cash deposits in non-functional currencies were €17 million (2009: €16 million) in US dollars, €3 million
(2009: €nil) in Swiss francs and €nil (2009: €1 million) in euro.
There were open forward foreign exchange contracts at 30 September 2010 to sell US$2 million in exchange for pound sterling and
to buy US$12 million in exchange for euro (2009: to sell US$6 million in exchange for pound sterling and to buy US$17 million in
exchange for euro). In addition there were open swap contracts at 30 September 2010 to sell Swiss franc 25 million in exchange
for euro (2009: to sell Swiss franc 27 million in exchange for euro). The fair value of these contracts at 30 September 2010 was
€0.5 million (2009: €(0.2) million).
g) Fair values.
The estimated fair values of the group’s financial assets and liabilities approximate their carrying values at 30 September 2010 and
2009, largely owing to their short maturity. The bases for determining fair values are disclosed in note 1. The table below analyses
financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (for
example, as prices) or indirectly (for example, derived from prices);
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 1 Level 2 Level 3 Total
€m €m €m €m
30 September 2010
Shares in investment funds 43 – – 43
Bonds 44 – – 44
Equities 14 – – 14
Derivatives – 1 – 1
101 1 – 102
30 September 2009
Shares in investment funds 41 – – 41
Bonds 39 – – 39
Equities 14 – – 14
94 – – 94
There have been no transfers between Level 1 and 2 during the year.
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Notes
forming part of the consolidated financial statements continued
24 Operating leases.
The group’s total commitments under non-cancellable operating leases are as follows:
A number of office facilities are leased under operating leases. The periods of the leases vary; lease payments are generally subject to
rent review every five years in the UK but normally are fixed in other countries.
The group also leases certain computer equipment, office equipment and motor vehicles under operating leases. These leases
typically run for a period of three years.
During the year, the group entered into a contract with a third party, for the establishment of an outsourced data centre in Germany.
This data centre will be constructed over 15 months to December 2011, for use initially by the member firms in the UK and Germany.
The group has committed to pay €112 million under the contract over the course of the next seven years.
The partnership has issued a guarantee of US$10.5 million (€7 million) to the bank providing loan facilities to the group’s associated
entities in Turkey.
94 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
26 Related parties.
The group has a related party relationship with its key management , considered to be the Board members of the partnership (pages
52 to 53).
The estimated total salaried remuneration, performance bonuses and profit entitlement due to the key management in respect of
the current year totalled €51 million for the group. The actual salary, bonus and profit allocated in respect of the previous year was
€39 million. The estimated cost of short-term employment benefits provided to the key management was €0.2 million for the year
(2009: €0.2 million) and the estimated current service pension cost was €0.6 million (2009: €0.5 million).
There were no balances due to or from key management at 30 September 2010 or 2009 save in respect of relevant shares of profit
(or related taxation), performance bonuses and members’ capital. As discussed in note 1, members of the LLPs receive monthly
drawings and other distributions representing payments on account of current year profits. These amounts are classified as ‘Amounts
due from members’ until allocation of the current year profits. In addition, performance bonuses and amounts that are retained from
allocated profits in respect of taxation liabilities that fall on individual members are classified as ‘Amounts due to members’ and are
expected to be paid in the short-term.
2010 2009
Millions Euros €m €m
Amounts due from key management 3 3
Amounts due to key management (19) (15)
(16) (12)
Total members’ capital invested during the year held by key management amounted to €2.9 million at 30 September 2010 (2009:
€2.5 million).
A member of key management during the year held a controlling interest in KPMG Rechtsanwaltsgesellchaft GmbH (RAG), the separate
KPMG member firm in Germany, providing legal services, which is not controlled by the partnership. The group provides resources
and support services to RAG, the value of which is immaterial from a group perspective.
Cooperatie KPMG U.A. (the Co-operative) is an entity registered in the Netherlands, through which the Dutch partners provide their
services to KPMG Netherlands. Transactions with the Co-operative totalled €75 million during the year. €72 million was outstanding
as amounts payable to the Co-operative at 30 September 2010 and as these amounts are ultimately due to the Dutch members, the
balance was classified as ‘Amounts due to members’.
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Notes
forming part of the consolidated financial statements continued
Associate undertakings
KPMG Belastingconsulenten en Juridische
Adviseurs CVBA Belgium Tax and legal services 49
Akis Bagimsiz Denetim ve SMMM AS Turkey Audit and advisory services nil
Yetkin SMMM AS Turkey Bookkeeping services nil
Yetkin YMM AS Turkey Tax services nil
1 Percentage of voting rights held.
2 Held indirectly through intermediate holding companies.
3 KPMG LLP has a 100% interest in the net assets of this company through its right to control the Board and because no other party has any entitlement to benefit from
future profits or to existing retained reserves.
4 Exercisable options over 100% held.
96 | KPMG Europe LLP | Annual Report 2010
Notes
forming part of the consolidated financial statements continued
Whilst the partnership does not own majorities in the share capital of KPMG Auditores SL (Spain), ZAO KPMG (Russia), KPMG
Armenia cjsc (Armenia), CJSC KPMG Audit (Ukraine) and KPMG Tax Sàrl (Luxembourg), these entities are nevertheless considered
to be subsidiaries of the group under IFRS since the agreements in place give the partnership the right to control, taking account of
exercisable options and the fact that the entities have each signed up to the KPMG ELLP operating protocol.
The partnership does not own any shares in three of the trading entities in Turkey. However, the partnership has call options to
acquire 100% of the shares, exercisable if local legislation is changed such that the partnership may acquire the shares. Under the
agreements in place between KPMG Turkey and ELLP, the partnership is considered to have significant influence and therefore,
the entities are considered to be associates of the group.
The partnership holds call options over those shares in the Belgian tax practice which it does not currently own, over the entity
providing audit services in Belgium and over entities in Turkey; none of these options are currently exercisable and they are considered
to have an insignificant fair value.
2010 2009
Millions Euros €m €m
Assets 24 16
Liabilities 21 14
Revenues 54 11
Profit 2 –
b) Belgium.
In November 2010, the partnership acquired 99.9% of the shares in KPMG & Partners BVBA, a Belgian company providing audit
services, for a cost of €0.7 million which in turn acquired 99.9% of the shares in Van Impe, Mertens & Associates BV, also providing
audit services in Belgium for €4.3 million.
The acquisitions in Belgium had the following estimated impact on the group’s assets and liabilities:
Provisional pre-acquisition
carrying amounts
Millions Euros €m
Property, plant and equipment 1
Intangible assets 1
Trade and other receivables 1
Trade and other payables (3)
Identifiable net assets –
The fair value of the amounts to be recognised at the acquisition date in respect of these assets, liabilities and contingent
liabilities, and the fair value of the cost of investment have not yet been assessed and will be disclosed in the 2011 consolidated
financial statements.
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Notes
forming part of the consolidated financial statements continued
Publication date:
December 2010
Design:
CONRAN DESIGN GROUP
Photography:
Simon Kreitem