UK regulator flags KPMG offshore audit teams handling higher-risk work

The UK’s audit watchdog is drawing a sharper line around KPMG’s offshore delivery model as India-based teams move beyond routine support and into work that requires professional judgement. KPMG UK’s latest transparency report put about a quarter of the people in its audit practice offshore, a scale that makes the question of who reviews, signs off and owns the file more than an internal staffing choice.

For auditors inside KPMG, the red line is not simple back-office processing. The Financial Reporting Council said overseas audit teams were increasingly doing work that requires professional judgement, the kind of task that regulators expect to sit closer to the engagement partner or local senior manager than a low-cost delivery hub. That changes the operating model in practical terms: more review layers, tighter documentation, more coaching for offshore staff and less freedom to push judgment-heavy work deep into the chain.

The FRC also said it would monitor the largest firms’ extended-team models over the coming year, a sign that distributed audit delivery has become a supervisory issue rather than just a resourcing strategy. That pressure lands directly on KPMG’s audit leaders, who have used offshore capacity to help manage margin pressure and staffing constraints while the firm tries to keep pace with busy-season demand and maintain quality on file.

The broader regulatory backdrop is not helping KPMG make the case for a looser model. The FRC said in October 2024 that Deloitte, EY, KPMG and PwC had completed the transition period of operational separation, and its 2024 audit quality reporting said the quality gap widened among Tier 1 audit firms. That matters because it shows regulators were already worried about uneven performance at the top of the market before offshore judgment work came under closer review.

KPMG’s own record has kept the issue live. The FRC announced sanctions against KPMG LLP, KPMG Audit plc and two former partners in October 2023. In July 2021, the watchdog said nearly a third of 103 audits it reviewed from KPMG and Deloitte in 2019 and 2020 required improvement, including KPMG’s banking audits. More recently, the UK accounting watchdog opened a probe into KPMG and two accountants over Wood Group audits.

The offshore question also has an international dimension. In December 2022, the PCAOB fined KPMG India $1 million for quality control failures, including a practice of signing off on dozens of blank work papers during audits. For KPMG, that history means the debate is no longer about whether offshore teams can save money. It is about whether the firm can prove that efficiency gains do not outrun accountability, especially when the work itself is becoming harder to classify as routine.