Investing to become the Clear Choice - KPMG | US

1 Investing to become the ClearChoiceUK Annual Report 2015 (including the Transparency Report)December before tax and members profit shares 383m(2014: 414m) -7%Average partner remuneration 623k(2014: 715K) -13%Total tax payable to HMRC 786m(2014: 711m) +11%Revenue 1,958m(2014: 1,909m) + people UK employees 11,652 Partners617 Community support Organisations supported1,049(2014: 878)Audit Contribution 197m(2014: 181m) +9%Ta x Contribution 151m(2014: 129m) +17%Advisory Contribution 308m(2014: 324m) 5%KPMG LLP Annual Report 2015 Strategic report2013201420152013201420152013201420 15201320142015 AuditTaxAdvisoryStrategic report4 Chairman s statement10 Strategy12 Our business model16 Financial overview18 Audit22 Solutions28 International Markets and Government32 National Markets36 People and resources40 Corporate Responsibility46 Our taxes paid and collected47 Independent limited assurance reportGovernance52 Our structure and governance54 LLP governance58 Activities of the Audit & Risk Committee in the year59 Activities of the Nomination & Remuneration Committee in the year60 Activities of the Ethics Committee in the year61 Quality and risk management61 Risk.

2 Potential impact and mitigations63 Audit quality indicators66 Statement by the Board of KPMG LLP on effectiveness of internal controls and independence67 Report from the Chair of the KPMG LLP Public Interest CommitteeFinancials72 Report to the members74 Independent auditor s report to the members of KPMG LLP78 Consolidated income statement78 Consolidated statement of comprehensive income79 Statements of financial position80 Statements of changes in equity81 Statements of cash flows82 NotesAppendices122 1 Structure and governance125 2 System of quality control139 3 Public interest entities listing14 3 4 Disclosure and Audit Firm Governance Code requirements148 5 KPMG s ValuesContentsThis Annual Report incorporates our Transparency Report by integrating herein the information required to be disclosed in accordance with the Statutory Auditors (Transparency) Instrument 2008 and the Audit Firm Governance Code.

3 Appendix 4 details where these disclosures in relation to both KPMG LLP and KPMG Audit Plc may be found in this Annual Report. KPMG in the UK is one of the largest member firms of KPMG s global network providing Audit, Tax and Advisory services. In the UK we have 617 Partners and 11,652 outstanding professionals working together to deliver value to our clients across our 22 LLP Annual Report 2015 Strategic report 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights LLP Annual Report 2015 Strategic report 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 All rights report14 Chairman s statement10 Strategy12 Our business model16 Financial overview18 Audit22 Solutions28 International Markets and Government32 National Markets36 People and resources40 Corporate responsibility46 Our taxes paid and collected47 Independent limited assurance report3 KPMG LLP Annual Report 2015 Strategic report 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights s statement 2015 was the year we put the substantial investment programme we announced in 2014 into action and we have seen some real progress. Simon Collins Chairman and Senior Partner KPMG in the UK4 KPMG LLP Annual Report 2015 Strategic report 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

5 All rights we need to be a responsible business which is good for society too, brave enough as we invariably are to speak up and act on the issues that will make a real difference to the UK economy. We can take action on issues immediately pertinent to our business, such as taking a lead on the evolution of tax and audit, as well as bigger society issues such as the Living Wage and affordable housing. We are proud to do audit retender market was alive with activity in 2015 and I m delighted to say our Audit practice has not only coped with a disrupted market but thrived at taking the opportunity to make our reports more valuable to investors and work with new clients. Part of that is down to the Financial Reporting Council s comply or explain governance regime. It has driven a relatively smooth transition to the new system and it s good to see best practice increasingly emerging both in terms of audit tendering and handover.

6 There are other benefits too. For instance, the new regime has forced us to examine our own practices and procedures. We ve had to articulate clearly the role we play in keeping companies safe and in maintaining public trust in the capital markets. The new regime has also boosted the quality of audit committees. They are now doing a much better job on behalf of shareholders and they are working harder to engage with auditors. It keeps us on our toes, forcing us to be both increasingly relevant and increasingly challenging. Ultimately, that is very good for corporate can feel proud about our own role here too. Because we prepared well for the new regime, it has been much less disruptive than it might have been. That achievement is reflected in our results, where we reported a growth in audit net sales. We ve maintained our win rate successfully with some important new mandates, notably Barclays, British American Tobacco and experian , and we audit more listed companies than any other firm.

7 We also achieved an important strategic goal for the year boosting our audit market share among FTSE 100 companies to 24%.In 2013, we set out on a programme of deep transformation with a three-year grip, build, grow strategy to reposition the business in the markets that we serve. Our annual results for 2015 show the progress we are making towards our ambition of marking out KPMG in the UK as the Clear Choice for our clients and for the talented people we year one, the focus was on controlling costs and restoring profitability. In year two, we rebooted the Firm at our One Firm event at the O2, which reinvigorated the values at the core of our business and boosted engagement with our partners and colleagues. We also announced a bold programme of investment, including an alliance with the McLaren Technology Group and a new deal with our has seen us begin the process of bedding down our investments from developing audits which can see round corners to giving our staff their birthdays off.

8 Within 12 months, we have seen these significant investments start to bear fruit. I am proud of what we ve achieved so it s important to be Clear that the journey has not been entirely smooth. Growth did not come as quickly in 2015 as we expected and our revenues for the year at billion ( billion in 2014) were below what we wanted to achieve. Profit, at 383 million, was also below all, that reflects our determination to continue Investing heavily in acquisitions, alliances, technology, talent and our network of offices to make sure we have the right resources and scale to meet our clients most pressing needs. In essence, the build phase of our plan continued into 2015. Nevertheless, we have held our nerve and began to see a distinct change as the year ended. Growth picked up in the last quarter of the year. It s early days, of course, but we are confident that the growth phase of our three-year plan has now as importantly, we have gone into FY 2016 with a Clear sense of who and what we are first commercially, as a market-focused, issues-led business with a much sharper focus on our clients needs; and secondly, and crucially, in terms of understanding the powerful contribution we can make to society at me the balance is very important.

9 There are many elements to building a truly sustainable business. We have to be successful, proud, prosperous and aggressive as a business, with an unblinking focus on winning in the market by finding new and better ways to serve our clients. 5 KPMG LLP Annual Report 2015 Strategic report 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights s statementcontinuedHowever, what s impressed me most is the way the Firm as a whole swings behind the effort to secure new audit mandates, losing all sense of working in silos. This is just the sort of one firm thinking that we are trying to encourage in all aspects of our business, day in and day committees are, of course, looking for value. But their priority is quality.

10 This is important and is contributing positively to improved audit quality, which is critical to investor and public are also continuing our efforts to broaden the audit itself through our extended audit report, where we go beyond regulatory requirements and include additional detailed commentary from the audit partner. Regulators, investors and some clients have responded to this initiative positively; other clients, in truth, remain unconvinced. Ta x We welcome the growing willingness of governments to work together across borders both to modernise international tax rules to make them relevant to modern business practices and to clamp down on aggressive tax planning, with the sort of proposals that have emerged, for instance, from the OECD s Base Erosion and Profit Shifting (BEPS) initiative. In the last two years, we have re-orientated our business towards tax compliance and the provision of specialist services in areas like transaction advice, tax value chain and country-by-country reporting.