KPMG International Annual Review 2009


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KPMG International Annual Review 2009

  1. 1. building 09 kpmg International confidence Annual Review
  2. 2. kpmg values we lead by example at all levels acting in a way that exemplifies what we expect of each other and our member firm clients. we work together bringing out the best in each other and creating strong and successful working relationships. we respect the individual respecting people for who they are and for their knowledge, skills, and experience as individuals and as team members. we seek the facts and provide insight challenging assumptions, pursuing facts, and strengthening our reputation as trusted and objective business advisers. we are open and honest in our communications sharing information, insight, and advice frequently and constructively, and managing tough situations with courage and candor. we are committed to our communities acting as responsible corporate citizens and broadening our skills, experience, and perspectives through work in our communities. above all, we act with integrity constantly striving to uphold the highest professional standards, provide sound advice, and rigorously maintain our independence. who we are The 140,000 people within kpmg member behavior around the world, we can work with firms worldwide provide a range of professional them wherever they choose to operate. services that help clients to meet challenges Our industry focus helps kpmg people to and respond to opportunities. develop a rich understanding of clients’ busi- Our member firms provide Audit, Tax, and nesses and the insight, skills, and resources Advisory services, delivering a globally con- required to address industry-specific issues sistent set of multidisciplinary financial and and opportunities. accounting skills and capabilities based on deep Our history spans three centuries and fea- industry knowledge. tures a number of significant mergers. Today, global capability and consistency are central kpmg is a truly global organization. Through its to the way we work. By providing global organ- member firms, kpmg operates in 144 coun- izations with the same quality of service and tries and territories. © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  3. 3. contents building confidence 2 Timothy p Flynn, Chairman, kpmg International . the new economic reality 6 three kpmg global leaders discuss the new economic environment and how kpmg member firms are assisting clients globally financial services 10 transformational change the business of the public sector 16 performance, efficiency, accountability focus on global growth 22 an expanding world of opportunity how we work 30 approach, people, and culture financial performance highlights 38 global board and executive team 40 Throughout this document, “kpmg” (“we, “our, and “us”) refers to kpmg International Cooperative (“kpmg International”), a Swiss entity, and/or to any one ” ” or more of the member firms of the kpmg network of independent firms affiliated with kpmg International. kpmg International provides no client services. © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  4. 4. building confidence Timothy p Flynn, Chairman, kpmg International . There are encouraging signs that the global economy is stabilizing and beginning to recover. Now it is time to look forward, taking the necessary steps to build the foundation for a sustainable economic recovery that will spur global growth. Certainly, there is much to be done to lend each other money or make deals successfully reset the global economy. until they have trust in the system. But I believe the most important step To restore trust, every element is to rebuild trust and confidence in our of the system needs to step up to its financial systems and in business in responsibilities. general. Investors will not invest until governments must put the right they trust the capital markets system. regulatory structures in place to moni- Consumers will not buy until they have tor compliance in every element of the confidence. And businesses will not capital markets. Businesses — helped 2 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  5. 5. chairman’s foreword by their auditors, boards of directors, There is no question that we “Certainly, there is and regulators — must provide an need to improve regulation to better almost radical transparency, with cover and control complex financial much to be done to enough information about operations products. I am encouraged by the successfully reset the to give every investor the information work that is being undertaken by the needed to make informed decisions. group of 20 (g-20) and the Finan- global economy. But We need to return to the funda- cial Services Board. The g-20 policy I believe the most mental way of doing business — statement addressed issues of better calculating the risks and returns on risk management, transparency, important step is every decision. It is no surprise that accountability, and global accounting to rebuild trust and three out of four audit committee standards, all of which are essential to members recently surveyed by effective global change. confidence in our kpmg say they have increased The g-20 leaders have called for financial systems their “hands-on involvement” with a single set of high-quality, global management and are reassessing accounting standards by 2011. We and in business in risk management as a result of the support international convergence of general.” economic crisis.* accounting and auditing standards. With greater connectivity in the capi- A cleAr role for the tal markets, it is increasingly impor- Accounting profession tant that regulatory systems be built Our profession has a clear role to play on a common platform. in this recovery, as we touch every Consistent regulatory approaches aspect of the capital markets system. should contribute to investor confi- Helping assure transparent informa- dence in the global marketplace. Our tion for investors is our core function, network strongly supports the global but our role is not limited to the inves- adoption of International Financial tor — it also includes providing the Reporting Standards (IFRS). right information to management to enable better decisions. restoring trust We need to provide boards of di- kpmg member firms have a critical rectors with assurance that they have role to play in restoring trust and are accurate, timely information to allow working diligently with both private them to effectively provide oversight, and public sector clients to help them and we support regulators in helping adapt to the dramatic change brought companies to implement compliance about by the crisis and worldwide programs. recession. We are helping them We already are beginning to see control and optimize costs; improve changes in the regulatory environ- the depth and transparency of their ment, and this is an area we will be financial reporting; and make needed increasingly focused on with clients. performance improvements. * Recalibrating for the “New Normal”: 2009 Public Company Audit Committee Member Survey © 2009 KPMG LLP (U.S.) kpmg International Annual Review 2009 3 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  6. 6. “Risk management risk front And center • Being an Employer of Choice Risk management is moving front and that attracts the best people and is moving front and center, not only with management provides opportunities for them to center, not only with but also with the board. Boards and learn and develop in their careers. management are having robust con- management but also versations to better understand the In 2009, our network of member firms sought to deliver greater value with the board.” risk appetite of the organization and for clients, driving efficiencies in the the allocation of risk across the entity. way we operate while investing in And many boards are taking a close those areas that can enhance our look at their risk oversight processes, ability to serve clients. including how they align risk oversight For example, we re-energized our responsibilities with the full board and mobility program, helping to ensure its standing committees. that we have the right person, with Organizations that have effective the right skill set, in the right country, risk management processes — that to help member firms serve clients. can identify, assess, mitigate, and We greatly expanded the use of monitor risk — are likely to be the eAudIT to help our member firms serve ones that are successful in these clients. The network's electronic audit challenging economic times, and that management tool is designed to deliver raise the level of trust both inside and an unparalleled audit experience. outside their businesses. Tax has taken efficiency to a new level in the way it delivers its services. guided by strAtegy Advisory simplified its service ap- Within our global network, we are proach, aligning it globally for greater driving forward with our strategy that consistency and adaptability to client has guided us successfully: needs. • Serving clients with the highest Our member firms continue to take levels of Professionalism and steps toward becoming more aligned, Integrity across our Audit, Tax, aiming to improve efficiencies and cli- and Advisory services; ent service. In Europe, Asia pacific, and the Americas regions, our firms are • Operating with Global Strength working together and building common and Consistency, and making processes and infrastructure to enable sure local operations and global greater sharing of knowledge and culture work together for the resources, regionally and globally. benefit of clients and our people; At the same time, we under- • Striving for Quality Growth that stand that strong country practices is sustainable to maintain the high are fundamental to how we face the quality of our services; and market. They help us maintain kpmg’s 4 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  7. 7. chairman’s foreword culture and values, which recognize ethics And integrity “I believe it is time to the unique and special aspects of our come first people and our communities. It is also time to recommit ourselves plan in earnest for the Indeed, we recognize that citizen- to operating with the highest level of post-recession world. ship is central to our organization. We ethics and integrity, where the first understand that responsible busi- and most important question consid- Companies need to ness practices contribute to broad- ered — before sales or profits — is: focus on long-term based development and sustainable “Are we doing the right thing, in the markets. However, we know that is right way?” growth plans and not not enough to fully address the chal- In the end, I believe that all of us just short-term cost- lenges facing our world today. We are need to get back to basic values, fos- committed to doing more — taking tering highly ethical business cultures cutting.” leadership in and for our communi- in each of our organizations — cultures ties, and using our skills in creative that have a common framework built and determined ways that help deliver on trust, integrity, and transparency, and support solutions. and grounded in the recognition of In the aftermath of the financial the roles and responsibilities that we crisis, this commitment strikes me as all have to the capital markets and the perhaps even more important than communities in which we operate. ever before. Each of us in business needs to ask, “What can we, as individuals, With crisis comes do?” And for those of us in leader- opportunity ship, “What can our organizations With the economic crisis has come do?” Strong, ethical leadership is new opportunities — and businesses essential to restore the trust and that can adapt to the new world will confidence that, more than anything likely prosper. else, should provide sustainability in I believe it is time to plan in the markets and drive recovery. earnest for the post-recession world. Companies need to focus on long-term growth plans and not just short-term cost-cutting. They need to look at their business models and innovate, develop new products and services, and enter new markets. They need to look judiciously at mergers and IpOs to create new opportunities for their busi- nesses. As leaders, we need to focus our people on the future. kpmg International Annual Review 2009 5 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  8. 8. the new economic reality responding to challenge and opportunity A discussion with (from left) Henry keizer, global Head of Audit; Loughlin Hickey, global Head of Tax; and Alan Buckle, global Head of Advisory What does the new economic reality mean for business? keizer Risk management has The economic crisis also has very involved in helping governments moved to the top of the agenda, not demonstrated emphatically that glo- adapt to the new realities. only in the board room but at every balization is happening — and that the level of management. Business is get- global world brings new opportunities keizer Companies and audit com- ting back to the basics of evaluating not just for growth but for increasing mittees face a real challenge in balanc- risk and reward and making sure they efficiencies. ing risk with being well positioned are properly aligned. to emerge from the economic crisis. The changes in standards around buckle governments are experienc- We are providing thought leadership disclosure and transparency are as ing the same kinds of challenges as through the kpmg Audit Committee dramatic as the changes we’ve seen businesses. The public sector is now Institute (ACI) on how to approach in the world economy. transforming itself through technology the alignment of risk and reward. Our and outsourcing and, unthinkable a few professionals also are working with hickey more regulation is an obvi- years back, is offshoring certain func- clients to make the audit process more ous response to the economic crisis. tions. kpmg firms always have been efficient — to see where we can more Business has to get its confidence heavily engaged with the public sector fully leverage their internal audit capabil- back and engage with governments in areas such as performance improve- ity, make greater use of technology, and in this process or risk ending up with ment, public-private partnerships, and offshore certain procedures where it inefficient regulation. helping with better ways to provide makes sense. Our goal is to deliver the services such as healthcare, so we are highest quality audit with the greatest possible efficiency. 6 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  9. 9. the new economic reality “One of the key roles is working with clients to identify the impact regulation can have on their business — plan for the implications and prepare to respond in a thoughtful, comprehensive way. — HENRy kEIzER ” What is the response to the changing regulatory environment? buckle In many cases, it’s not the pany be dealing with that risk? Then precise detail of regulation that has collaborate with regulators so they changed as much as the attitude of better understand how risks are being senior executives and board mem- managed — this can influence how bers. There is a massive increase in regulation ultimately evolves. the level of awareness around compli- ance and the seriousness with which buckle governments also are real- these issues are taken. izing the limitations of national regula- We are in a time of great public tion. They have attempted to regulate scrutiny — from what you pay your businesses that aren’t national. And people to executive and director ap- there is risk of regulation arbitrage, pointments. governments not only with companies choosing to do busi- have a point of view, but increasingly ness where the regulations are most are in a position to do something favorable. governments are talking about it. about harmonizing regulation globally, but this is an extraordinarily difficult hickey Businesses should not just thing to do. accept regulations as the cost of doing What might appear on the surface business. They need to understand the hickey Regulation on a national as incremental to the regulator could reason behind the regulation. basis is fine only if compliance is a be burdensome to the entities being At the moment, tax authori- containable cost within the country. regulated. ties around the world are trying to But when multiple countries regulate One of the key roles is working promote a collaborative approach and around the same issue in different with clients to identify the impact focusing more on regulating behaviors ways, the cost of compliance mul- regulation can have on their busi- through codes of conduct or relation- tiplies for multinational companies. ness — plan for the implications and ship building, rather than fighting a Organizationally, we are encouraging prepare to respond in a thoughtful, losing battle of trying to legislate rules tax authorities to agree to a set of comprehensive way. for business models that keep chang- overarching principles so that with ing. This is a worthy approach and, if minimal localization, a company hickey It's important to help clients successful, it may provide a model for can be in compliance with multiple balance two things — one is manag- other areas of business. countries’ regulations without starting ing risk; the other is creating value. from scratch. If the focus is on meet- If clients can do that they can derive keizer I would encourage those ing the principles, it is likely that the some benefit from the increased being regulated to start with trying company will meet the regulation. regulation. If benefits can be cap- to better understand the risk that the tured, it will encourage maintaining regulator is concerned about. What is keizer It pays to work with regula- the processes that enable the value- the reason for the regulation? Absent tors starting now, rather than wait- capture. This incentive for sustainable the regulation, how would your com- ing to respond in a reactive manner. processes should reassure regulators. kpmg International Annual Review 2009 7 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  10. 10. “The most important thing we can do for clients is to truly be advisers in a global world. most issues are not limited to one country... ” — LOugHLIN HICkEy How does business go from “survive” to “thrive”? buckle I’d start with the global the company’s workforce, contribute growth story, which is very excit- to innovation, and then these new ing. The growth just isn’t going to be workers can become the consumers where we’ve seen it in the past. On of tomorrow. trips to India and China I am inspired by the confidence of business leaders buckle Of course the developing and the vibrancy of the environment. economies often face huge infrastruc- There is some upturn in m&A activ- ture challenges — transport, power, ity — companies in what used to be and, increasingly, water. As leaders in called emerging markets are now looking advising on infrastructure projects, we to buy, but not necessarily into the West. are close to many of the major deals. A higher proportion of deals will be be- tween those in high-growth economies. hickey There definitely will be more Clients look to kpmg to bring collaboration and more partnerships — greater vigor to their investment and public and private sector, company financing decisions. And of course the to company, and country to country. the economy, it can enable greater challenge of capturing value post- Whatever the relationship, it is critical efficiency for companies that today acquisition is far more complex when that the parties have assurance that are burdened by a variety of different working across borders. everyone is playing according to the accounting models. same set of principles. I believe we are well along the hickey I describe our approach path, but there is clearly work to be with clients today as the “art of the keizer Convergence to a single done, primarily with the convergence possible. Our professionals can help ” set of accounting standards should between u.S. gAAp and IFRS. The business to make the difficult and be an immense help to companies in good news is the Securities and complex possible. Steer them through succeeding in a truly global economy. Exchange Commission, the primary cross-border issues, through regulatory A single set of standards can provide regulator in the united States, has minefields, how to move people from the comparability, transparency, and committed to more specificity around country to country. Enable new people ability for investors to be guided by a timelines that could help encourage in new locations to be brought into single model. This will not only help u.S. companies to convert. How are kpmg member firms delivering for clients globally? keizer global consistency has nev- consistent execution of audits around heavily in mobility assignments so that er been more important. Our network the globe. our clients and engagement teams can of member firms shares a common We have invested in people initia- benefit from people with a range of set of processes and a single global tives to drive a global mindset. These knowledge and perspectives. audit methodology. We have policies initiatives include training our profes- and controls in place that facilitate sionals on a global basis and investing 8 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  11. 11. the new economic reality “The public sector is now transforming itself through technology and outsourcing and, unthinkable a few years back, is offshoring certain functions. ” — AlAn BuCkle HICKEY The most important thing we from their home location using tech- can do for clients is to truly be advisers nology or coming onshore. in a global world. most issues are not limited to one country — it’s likely the KEIZER By working cross-functionally, issue is being dealt with somewhere adding Tax knowledge and Advisory else. This can bring a different perspec- skills to Audit capabilities, we can tive to a local challenge. And by seeing bring even more value to clients. A where local issues are part of a bigger lot of our work with governments trend we can help clients anticipate has been done jointly by Audit and and prepare their stance, and help Advisory teams. IFRS conversions shape any new rules. are another great example where our You have to add the value the member firms have combined techni- client is looking for, not define value cal Audit skills with process change by what your current capabilities are. management from kpmg’s Advisory We’re helping our people to challenge, professionals. listen, and give advice that includes needed perspective on what is going HICKEY We’ve had a similar experi- on in other regions and countries. ence in China helping clients with new tax rules. We stay abreast of what’s BUCKLE Client relationship manage- going on with tax authorities there and ment has been global for many years around the world. kpmg’s Advisory and increasingly the kpmg talent pool professionals have specialized knowl- is becoming global and mobile. We edge of assessing and managing risk. are using talent strategically to meet By partnering together, we can help the needs of our clients. For example, provide a richer solution that goes teams from India and eastern europe beyond just a single function. are serving Western companies either What are the keys to a continued economic recovery in 2010? KEIZER We need to look outside our HICKEY I think confidence is key. BUCKLE In the West we need con- borders to make investments in new giving clients confidence to take on sumers to pick up the stimulus baton markets and industries — creating the projects they know could make from governments. But countries in business growth. Adopting a single a big difference to their organiza- the east and South bring the greatest set of accounting standards can help tions — this in turn should make a big opportunity — governments and cor- in terms of transparency for investors difference in the countries where they porate balance sheets are strong and, and allowing companies to truly func- operate and invest. This innovation increasingly, their domestic markets tion globally. I also think it is important and productivity boost will ultimately are driving growth. to have the appropriate safeguards contribute to the continued growth of in place so that we won’t experience the global economy. another economic crisis on this scale in the future. kpmg International Annual Review 2009 9 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  12. 12. financial services transformational change “Even as the global economy stabilizes, the financial services industry continues to undergo transformational change, says Brendan Nelson, ” global Chairman, Financial Services. This change is being driven by a number of factors, including government and regulatory policy, efforts to significantly reduce costs and streamline operations, and mergers and acquisitions. In 2009, the governance models ecutive pay. u.k. and French authori- of financial institutions came under ties have called for a tax on bonuses. intense scrutiny, and several funda- In the united States, the Federal mental principles are now in ques- Reserve is pursuing new compensa- tion. What should be expected of tion principles based on longer-term the board of directors and the audit strategic performance metrics. In committee? Will financial institutions addition, significant reform of the be required to establish independent banking system is being proposed in risk oversight committees? If so, who the united States as well as a levy on will serve on those committees, and banks’ balance sheets. exactly what would be their charter? While many aspects of the future Consumer protection rules are shape and contours of the financial likely to be tightened, and executive services industry are unclear, it does compensation is the subject of vigor- seem clear that government involve- ous debate. Authorities on both sides ment will continue for some time, of the Atlantic are seeking to limit ex- significant regulatory actions will likely 10 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  13. 13. financial services “Even as the global economy stabilizes, the financial services industry continues to undergo transformational change. ” — BRENdAN NELSON, global Chairman, Financial Services be enacted, and financial institutions supporting Commerzbank will likely need to work more closely with government authorities to en- IN 2009, COmmERzBANk COmpLETEd THE TAkEOvER of Dresdner Bank, forming the second-largest private banking group in Germany. KPMG in Germany, sure stability in the financial markets. serving as joint lead adviser with another firm, has worked with the organiza- tion from the beginning to the close of the transaction and now is supporting the increAsing risk oversight implementation of parts of the bank’s new strategic agenda. Around the world, regulatory and KPMG in Germany has been working with Commerzbank for about eight political leaders are calling for greater years. Serving the bank during the last two years has meant working during the financial crisis and its aftermath. restrictions on financial services organ- Commerzbank has refocused its strategy during this time and is in the process izations, and a large number of bank- of divesting certain non-core assets. KPMG firms serve the bank as advisers in ing institutions are responding accord- both the finance and transactional areas. ingly, returning to their traditional role. As confidence returns in the financial markets and the financial services in- Still, it is not realistic to expect that dustry, organizational and operational performance issues come into focus. KPMG the entire financial services industry member firms are making a valuable contribution in these areas too, working with Commerzbank to further optimize its processes. will go “back to basics. modern ” “To successfully support the strategic agenda of Commerzbank, it is neces- finance is extremely complex, in part sary to take the bank’s perspective in everything we do,” says Ralf Beunker, Global because investor demand for returns Lead Partner for Commerzbank. “We have makes complexity inevitable. built a multidisciplined client service It is realistic — and prudent — to team with extensive experience in risk and compliance as well as transactions expect greater oversight of risk. Regu- and restructuring. Most important, our lators are demanding that financial partners and professionals have strong entities have appropriate risk manage- relationships at the bank and the right ment and oversight systems tailored knowledge to help organizations to meet to their risk exposures. An important the current and emerging challenges. challenge for these organizations, This is the strength of KPMG’s internal network.” therefore, is to ensure that their risk management systems are capable of fully identifying all the risks inherent in the products and services they offer. And they must be able to report these risks in a way that is clear and understandable to everyone involved in risk oversight, both within and outside the organization. Even more important, organiza- tions will be challenged to embed risk management within their organiza- tion, empowering individuals to make risk-based decisions that result in ac- cepting appropriate risks, generating desired returns, and increasing the overall value of their enterprises. kpmg International Annual Review 2009 11 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  14. 14. kpmg member firms audit 18 of the top 50 global banks, and audit 13 of the top 50 insurance companies from liquidity issues, challenges, and risks unique to mAnAgement to optimizing financial services organizations. Our the business model practitioners utilize methodologies Today, financial services companies and toolkits that enable standardized are wrestling with a range of daunting working practices while allowing them and fundamental challenges, including: the opportunity to learn from others, regardless of their location. • How to manage and maintain liquidity in markets that may still multidisciplined teAms be weak; kpmg’s multidisciplined approach is • How to restore profitability, effec- a key strength. member firm profes- tively manage risk, and generate sionals combine deep industry know- acceptable returns on capital; ledge and content, an understanding • How to reduce costs and stream- of important emerging industry trends line operations while maintaining and issues, and extensive knowledge service and performance; and of core processes, with proven and developed methodologies. • How to ensure that the business We bring together teams of kpmg model is aligned with the new people to help solve pressing needs — realities of the marketplace. around government interventions, The overarching challenge is to recapitalizations, risk reduction and maintain a competitive cost structure mitigation strategies, and the need to that does not compromise high stan- improve operational infrastructure. dards of service, brand equity, and kpmg member firms also actively the development of new products and engage with regulators, and work with services to satisfy customer demand boards and executive management and generate appropriate returns. teams to help assess organizational kpmg’s network of firms has long risk and guide needed corrective been a leader in serving the finan- action. Our firms are well positioned cial services industry and is actively to help companies to embed risk engaged with clients around the world, and capital management within their combining global consistency with organizations — helping them to fully service that is attuned to the local understand risks and optimize returns. marketplace. We offer skilled resour- In almost every case, our ability to ces — a network of more than 21,000 combine skills drawn from specialists professionals experienced in the across our business has been the key to success. 12 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  15. 15. financial services bAnk conversion After a major global investment bank was converted to a bank holding com- pany, it faced a number of critical oper- ational and regulatory issues, including the need to comply with very different financial reporting requirements. kpmg in the united States provided a gap analysis that identified the regulatory, risk management, financial reporting, operations, and technology systems and processes that needed remediation. globAl tAx Advice helping to navigate a changing landscape Early in 2009, a major global financial services company engaged kpmg in the united States to serve as the “CAuTIOuS OpTImISm” is the watchword for banking in the United States, says lead tax adviser on its integration with Tony Anzevino, National Sector Leader for KPMG’s Banking and Finance practice in the a newly acquired global investment United States. “Our clients are looking forward to 2010 with a more positive outlook. bank outside the united States. Later Liquidity has improved, and it appears that the worst of the crisis is behind us. But our in the year, the company selected the economy is still fragile and recovery will take time.” Anzevino points to three major trends influencing the industry right now. The first International Executive Services (IES) is a renewed focus and emphasis on enterprise-wide risk management. Many banking practice to provide core tax compli- companies are examining their risk management structure and are working to imple- ance services to its expatriate popula- ment the right policies and procedures to support that structure. tion during the next three years. This The prospect of regulatory change is another pervasive issue. The U.S. Congress is assignment led directly to another IES debating changes to regulations that govern the industry, while regulators themselves engagement to assist the bank with are scrutinizing banking operations more closely. Third is the potential for continued consolidation and convergence in the industry. certain withholding and reporting obli- More than 100 U.S.-based banks failed in 2009, up from about 25 in 2008. “This is obvi- gations related to its global workforce. ously a serious issue for banks in dire straits, while for some it is an opportunity,” says Anzevino. “As companies feel more comfortable with their capital levels and their ability to raise capital, they are starting to see that there could be an extraordinary opportunity to make acquisitions and expand their footprint.” Leveraging our deep industry knowledge and experience, KPMG in the United States is helping companies navigate these new and challenging issues, bringing the full power of the Banking and Finance practice to the marketplace. Our multidisciplinary approach is proving valuable. “Our clients appreciate when we bring our Audit, Tax, and Advisory capabilities to the table,” says Anzevino. “We are recognized as a leader in serving the financial services industry broadly, and the banking and finance industry more specifically. We also have a reputation for provid- ing our clients with exceptional client service delivered through industry professionals with the knowledge, skills, and experience required to meet their current and future photo above: Tony Anzevino (standing), challenges,” says Anzevino. “I believe we are helping our clients navigate one of the most with (from left) partner mark Shrekgast, Senior manager Barbara Federowicz, difficult economic environments since the Great Depression, and I am optimistic that in and partner Ellen Rotenberg the long run we will have contributed to a stronger, more secure financial system.” kpmg International Annual Review 2009 13 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  16. 16. “kpmg’s industry knowledge has proven to be invaluable in facilitating an understanding between banks and government about what is the art of the possible. ” — BRENdAN NELSON, global Chairman, Financial Services prepAring for regulAtory chAnge There is little question that tomor- row’s financial services industry will be more tightly regulated than to- day’s. governments, seeking to instill confidence in the markets, will likely put in place regulatory structures to monitor compliance in every element of the capital markets. New capital requirements will likely be mandated in every region of the world. Banks and other financial institutions may be required to hold monitoring the g-20 more capital reserves, and those reserves can be expected to meet a kpmg IS CLOSELy mONITORINg and assessing activities of the Group of 20 higher standard of quality. (G-20) finance ministers and central bank governors as they discuss key issues in kpmg member firms aim to play the global economy. Following the G-20 summit in London in April 2009, KPMG a constructive role during this transi- established a Global G-20 Task Force to help clients prepare for potential changes in financial regulation. This included forming G-20 task forces in individual coun- tional time, just as they have since the tries to react to and monitor local issues. For example, the U.K. task force tracked beginning of the financial crisis. Says the regulatory changes proposed by the Financial Services Authority, gathered Nelson: “kpmg’s industry knowledge insight from clients on the proposed regulatory changes, and developed proposi- has proven to be invaluable in facilitat- tions to assist clients with the changes. ing an understanding between banks and government about what is the art of the possible. ” shAring knoWledge With governing bodies kpmg professionals have established working relationships with govern- ment and financial industry governing bodies, enabling us to share leading practices and contribute to reform efforts. 14 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  17. 17. financial services For example, kpmg firms: enhancing stability in the financial system • Worked with the European AS THE ECONOmy BEgINS TO RECOvER, enhancing stability remains a Commission on Solvency II, the challenge as failed and severely damaged financial institutions are absorbed by the planned overhaul of regulation for financial system. European insurers; Professionals at KPMG in the United States are playing a valuable role, as- sisting both companies that are consolidating and governmental organizations • provided assistance to the charged with overseeing and regulating the system. Organization for Economic For instance, our professionals work with banks acquiring the assets of failing institutions, assisting with a range of short- and longer-term issues and services. Typi- Cooperation and development cally, banks have little time to evaluate the assets they are acquiring and integrate working party on transfer pricing them into their operations. There are often significant accounting, tax, and operation- for insurance; and al implications to consider and resolve quickly. And, from the outset of these transac- tions, companies must adhere to a set of strict regulatory compliance procedures. • provided input to the ministry of “When an acquiring bank is the receiver of a failed bank’s assets, it enters Finance and Tax Administration into a unique and highly detailed contract with the FDIC,” says Linda Gallagher, a in China on the development of Principal in the Advisory practice and a leader on regulatory matters for KPMG in a tax regime for foreign-owned the United States. “One of the keys to good compliance in this or any regulatory insurance companies. compliance matter is to establish the appropriate policies and procedures.” KPMG professionals also are assisting the regulators themselves as they contend with limited resources and new responsibilities. In the past, our relation- Assessing the impAct of ships with these regulators were limited, focused primarily on emerging regulatory regulAtion changes and their impact on clients. During the financial crisis, KPMG professionals kpmg professionals often work with in the United States have had the opportunity to help regulators meet their statu- clients to help them evaluate the tory responsibilities. And we have helped evaluate the root causes and the continu- ing implications of certain bank failures. impact of new regulatory reforms to Says Scott Marcello, Deputy Line of Business Leader, Financial Services in the inform their strategic planning efforts. United States, “Ongoing efforts to stabilize the financial system and, at the same Recently, they assisted a global bank- time, significantly change the regulatory paradigm, have posed a variety of chal- ing company, helping to assess the lenges for companies and regulators. This is clearly an extraordinary time for banking implications of potential regulatory re- in the United States, and the quality of our professionals, our broad experience, and forms for the bank’s global operations. valued insights allow us to provide very meaningful assistance to both financial insti- tutions and their regulators as they navigate through the many challenges they face.” Issues under discussion included new capitalization requirements and their implications; potential reforms in governance, including compensa- tion; pricing and consumer protec- tion issues; and potential changes in accounting rules. The client is utilizing this assessment as it sets a course for the future. kpmg International Annual Review 2009 15 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  18. 18. the business of the public sector performance, efficiency, accountability governments around the globe have become change agents due to the global economic crisis and its aftermath. But as the role of government has extended beyond providing public services to funding stimulus programs and rescue packages — and even taking ownership interests in financial services and automotive companies — new questions are being raised about how governments can meet their expanding obligations. In global research conducted by kpmg nies, in turn, must comply with new, of public sector leaders,* there was rapidly evolving laws and regulations. agreement that, in the aftermath of the many organizations look to kpmg economic crisis, governments must member firms for answers. Our gov- become smaller and more efficient ernment practice assists local, regional, and public sector organizations must and national governments around the better account for their spending. world in implementing governance and pressures also are increasing for performance management structures, public officials and their agencies to enabling them to build thriving econo- meet higher standards for accountabil- mies and turn crisis into opportunity. ity and transparency. At the same time, we are helping busi- part of the solution is for the public nesses work efficiently and effectively sector to partner to a greater extent with these government entities. with private industry. These compa- *The Wolf is at the Door: The Global Economic Crisis and the Public Sector © 2009 KPMG International 16 kpmg International Annual Review 2009 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
  19. 19. the business of the public sector “The top 10 issues governments around the world are facing are the same or similar. ” — JOHN HERHALT, gobal Head of government globAl perspective; innovations from the u.k. member firm’s locAl strAtegies highly successful Operation Quest, a “people generally think of govern- sustainable transformation program in ments as local entities and don’t see frontline policing. Quest significantly them through a global lens, says ” improves operational performance by re- John Herhalt, global Head of govern- ducing bureaucratic processes, resulting ment. “But the top 10 issues govern- in higher satisfaction ratings from citizens ments around the world are facing are and increased morale among officers. the same or similar. kpmg’s global ” “There is a lot of learning that network enables our professionals to moves from one government to share and build upon the best thinking another, says Alan Buckle, kpmg’s ” and practices. global Head of Advisory. “Ideas do In the European union (Eu), move around the world, and we col- kpmg member firms assembled an laborate to leverage these ideas for our audit team with professionals from 27 clients. It’s a powerful capability. ” Eu countries and nine Eu-associated countries for the European Commis- sion (EC). There are more than 3,000 audits to be performed in a consistent manner across Europe in the EC's re- building digital highways search and technological development program and related nuclear research IN THE 21ST CENTuRy, the need for enhanced infrastructure is just as urgent in the digital world as it is in the physical world. As part of its infrastructure program, Australia program. The EC put these audits is creating the National Broadband Network, a nationwide fiber-optic, satellite, and to tender, requiring a “cascade” of wireless broadband system intended to deliver high capacity to every Australian home, service providers with a range of skills school, and business. This is the largest infrastructure investment in its history, and the consistent across all countries. The EC Australian Government has tapped KPMG in Australia to recommend ways the project selected kpmg as the first provider in can be financed, built, and operated. The KPMG team is building on the leading knowl- this “cascade” contract. edge and ideas applied to a similar groundbreaking project in Singapore. ulrich maas, Europe, middle East, and Africa Head of government, kpmg in germany, says, “The firms convinced the Commission and won against stiff competition because kpmg had deep insight into the necessary audit procedures, had done similar work within many European kpmg practices, and could dem- onstrate effective integration of our member firms. ” kpmg in the Netherlands has worked with 26 dutch police forces to improve performance, borrowing kpmg International Annual Review 2009 17 © 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.