KPMG N.V. Integrated Report Including the KPMG Accountants N.V. Transparency Report Re Gain 2013 2014 INTEGRATED REPORT 2013/2014 Contents Report of the Board of Management 01 To our stakeholders 4 When I look back 5 Radically different context 6 Change from within via true blue 7 Stage 1: creating a strong foundation 7 Stakeholder Dialogue 22 Who our stakeholders are 23 Stakeholder expectations 25 Material issues: linking 27 expectations with our strategic objectives 04 The Public Trusts Us Dependable consistent high 32 levels of quality 31 Building trust 10 Robust Risk Management Stages 2 and 3: maintaining the12 momentum of change We demonstrate social 44 responsibility About this report 13 Innovation and thought leadership 45 Contents guide 13 Board of management 14 02 05 Vision & Strategy 15 Inspire Confidence. Empower Change 16 The vision of true blue 17 Realising our vision: true action 19 Value creation 21 2 40 Our People are Extraordinary 46 Our partners lead by example 47 Consistent high levels of 48 engagement and performance Diversity in our workforce © 2014 KPMG N.V. All rights reserved. 03 50 INTEGRATED REPORT 2013/2014 06 07 08 09 Report from the Supervisory Board Top brands want to work with KPMG ‘for life’ 52 Governance80 Clients are promoting KPMG, its people and its solutions 53 Operational Excellence 54 Sustainable Profit55 Partner remuneration 58 Follow up on quality performance 60 Sustainability performance 61 Statement on effectiveness of quality controls and independence 64 Governance & Risk Management 66 Who we are67 Governance68 Risk management © 2014 KPMG N.V. All rights reserved. 10 Our Clients See the 51 Difference in Us 74 3 Other activities of the Board 79 81 Financial statements and discharge 81 11 To conclude 82 Appendices 83 Public Interest Entities 84 (‘organisaties van openbaar belang’) Summary of our system of quality controls 12 87 Financial Statements 100 GRI Disclosure table 147 Glossary 168 INTEGRATED REPORT 2013/2014 01 © 2014 KPMG N.V. All rights reserved. To our stakeholders 4 INTEGRATED REPORT 2013/2014 When I look back When I look back at the 2013/14 financial year, which ended on 30 September 2014, I see a mixed picture. On the one hand, it was one of the most difficult years in KPMG’s almost 100-year existence. There were simply too many incidents. On top of that came the negative AFM report on the quality of audits by the four big accounting firms which resulted in additional adverse publicity. We must conclude and realise that we have lost a good deal of our public credit. On the other hand, I see a tremendous willingness amongst our people at all layers in the organisation to work towards regaining that lost trust. Our partners and employees recognise that it is imperative to do things differently. We understand that how we are being perceived is dominated by the mistakes we and our profession have made in the past. In their private circles, our people are being increasingly confronted with questions about the current upheaval in our sector. © 2014 KPMG N.V. All rights reserved. Unfortunately, the good work that our more than 3,000 employees do every day is being pushed into the background. This is why I would like to take this opportunity to express my sincere appreciation for the contributions of all our people. Their perseverance and their huge efforts are helping to put KPMG back in front. Thereby I certainly do not wish to trivialise the other matters. Regardless of the positive results achieved in this financial year, the quality of our work and our professional conduct will determine the degree of our success in the future. All of us at KPMG are fully aware of that and also that a lot of work still has to be done on that front. In May 2014, Jurgen van Breukelen resigned as chairman of the Board. 5 Originally, it was intended that I would, on one day a month basis, advise KPMG on governance matters. It was soon evident that more was needed and the one day advisory role became a full time position as chairman of the Board. We appointed an almost entirely new Board of Management that now for the first time in KPMG’s history includes people from outside the sector. This is a crucial development in terms of the future of our profession since our profession will change fairly radically, particularly in Audit, in the year ahead. Society demands it. Our clients ask for it. And our partners and staff want it. At KPMG we want to take the lead in introducing essential reforms in our sector and by doing so to set the standard. INTEGRATED REPORT 2013/2014 Radically different context The context in which we operate has changed quite dramatically in the past financial year. We have lost a good deal of the trust society used to place in us. Serious incidents and a critical report from the regulator on the quality of our statutory legal audits have hurt us. Increased regulations and legislation, mandatory firm rotation and the ban on consultancy activities for public interest (“OOB”) audit clients have also had a major impact on our firm. The message from parliament is clear: clean up your act or we will do it for you. That message was also a consequence of the report published in September by the regulator, AFM, on the engagement reviews conducted by it. KPMG scored poorly in this review into the performance of statutory legal audits in the year 2012 and associated system of quality controls at the Big 4 audit firms. The AFM concluded that seven out of ten engagements investigated were © 2014 KPMG N.V. All rights reserved. inadequate in the sense that they lacked sufficient and suitable audit evidence. A score of seven fails out of ten is simply not worthy of KPMG. We have followed up on all of the AFM’s findings and made corrections although we also concluded that there was no need to change the previously issued audit reports on the financial statements in question. We acknowledge and fully support the findings of the AFM and we have analyzed them to find any fundamental causes. In response to this, we have drawn up a far-reaching and fundamental plan of action which makes quality improvement our absolute priority. Section 4 of this report discusses this subject in greater detail. At the end of the summer of 2014, the sector published its joint views on the future of our profession in the Netherlands. During the public 6 debate that preceded that publication, we offered our apologies to all our stakeholders. It befits us to reiterate that apology here. We regret the impact that our performance has had on the relationship with our clients, on our employees, on the sector and on society as a whole. We are doing all that is necessary to ensure that this does not happen again. Like the findings in the AFM report, the conclusions in the report published by Dutch Institute NBA - ‘In the public interest’ – in which we played an extremely active role, were quite clear: a culture change is needed to restore trust in the sector. The public interest must once again be the sector’s top priority, and our position of trust and the quality of our work must be what drive us. INTEGRATED REPORT 2013/2014 Change from within via true blue Stage 1: creating a strong foundation In anticipation of the NBA report and based on our internal analysis, the Board of Management launched the change programme ‘true blue’ in May 2014 as the accelerator for the changes we as a firm believe are necessary. The fundamental requirement in this is that, after the various incidents and the findings of both the AFM and the NBA, we need to return to the basics of the founders of KPMG, Piet Klynveld, and Jacob Kraayenhof, the K’s in KPMG. It seems that the ‘K’, for kwaliteit (quality) they stood for in 1917 had faded into the background. KPMG had become too inward looking and was paying far too little attention to what was happening in the outside world. Too little focus on the market and on clients; too much focus on itself. We thought it best to quickly launch a thorough investigation into the reasons why quality deficiencies were occuring and then quickly address these. To this end, we conducted a deep dive analysis and drew up a plan of action. The analysis revealed six key findings. Three of these were largely internally driven, while the other three were mostly externally driven. Based on those findings, we defined seven workflows that would allow us to quickly implement improvements in the fields of governance, partner remuneration, cooperation, audit quality, the business model, public trust, and manner of communication. It was clear that there was an enormous willingness among all our employees to be part of theses changes. More than 200 colleagues volunteered immediately to participate in one of the seven workflows. And more than 2,300 employees took part in the dialogue sessions that we organised from the summer through September at all levels and right across the entire organisation. In very open and lively discussions, the Board of Management, partners and employees discussed the future conduct expected of the firm and the changes this will necessitate. This input combined with the thorough analysis formed the basis of the change programme and the business plan for financial year 2014/2015. The goal of true blue is clear: initiating the changes needed to achieve our ambition to make KPMG once again the standard for the rest of the sector. And that with quality and integrity as our absolute priorities. This is based on a clear purpose: Inspire Confidence. Empower Change. In the recent past, we have demonstrated that we are extremely serious about making major changes in various areas. We have shown that not only do we want to take the lead, but that we also want go beyond what is strictly necessary. That is in line with our ambition to set the tone for the rest of the sector. The approach that we as the Board of Management have elected is has three phases: stabilise, strengthen and grow. © 2014 KPMG N.V. All rights reserved. 7 INTEGRATED REPORT 2013/2014 Adaptation of the governance structure Improvements to cooperation and alignment The first observation focused on the governance and the inward looking nature of our organisation. There was also a lack of engagement among employees. The Governance workflow was given the task of designing and implementing a new governance structure. In June, the new Board of Management was appointed and started working ad interim until the new governance model came into force on 1 October. In the new structure for the Board of Management, the posts of Chairman (CEO), Chief Financial Officer and Chief Human Resources Officer have all been filled by people recruited from outside the sector. These members of the board are available full-time for their executive tasks. Their appointments and a future Supervisory Board comprised solely of external members means we have taken far-reaching steps to further professionalise the governance structure from an outside-in approach to better safeguard the quality of our work. The second issue we noted was the lack of shared interest among the partners. Our partners need to once again assume the intellectual and emotional ownership of the firm. In addition, there was too much distance between the partners and the employees. We have tackled this issue in our new KPI framework that applies to every partner and all employees so that everyone is aware of the interests at stake. And therein quality rather than profit has become the main guiding principle. Topics such as setting the right example, people engagement and open feedback have been embedded explicitly in this framework. © 2014 KPMG N.V. All rights reserved. We will also continue our dialogue sessions and partners will actively request feedback from their staff, include identified areas of improvement in their year plan and also report back to their staff thereon progress achieved. 8 Communication is a crucial issue when it comes to alignment and we have taken major steps in this area, too. Our communications are now more personal, more frequent and more transparent. And this applies to both external communications and communication with our own employees. We now have shorter lines of communication between the Board of Management and the organisation, and we now work as a team on the basis of the open office principle. This ensures that we are even closer to our employees and can hear and listen to what is happening within the organisation on a daily basis. We also visit one of our regional offices at least once a month to maintain a dialogue with employees and clients. At the same time, the Markets & Clients department is developing various initiatives to maintain an even more intensive dialogue with our stakeholders, as we are already doing through our programme for Supervisory Board members. INTEGRATED REPORT 2013/2014 Introduction new partner remuneration Start large-scale quality programme Activ8 Your Audit Quality Audit and Advisory joining forces We also discussed the fairness of the partner remuneration system extensively among ourselves. This was driven too little by the interests of the firm as a whole and the evaluation was all too frequently subjective. The remuneration workflow drew up a new proposal for partner remuneration that addresses both of these issues. Commencing fiscal year 2014/2015, the performance of partners and senior staff will be subject to an objective evaluation based on eleven clear, objective Key Performance Indicators (KPIs). These are grouped under the four focal points for the years ahead: people, clients, public trust and operational performance. What this means is that quality is once again our main priority, performance is assessed objectively and everyone across the organisation is working towards the same shared goals. The KPIs are discussed further in section 2. The improvement of the quality of our audits is a crucial part of the change programme we have launched. Everyone at KPMG has to realise that quality and integrity form the basis of our licence to operate. This is why from now on we will have only one single standard when it comes to our quality: zero issues. Nobody, be it client or regulator, should be able to find fault with the quality of our work, our actions and behaviours. This is something we are working very hard on. We are hiring around 100 extra employees and developing new quality processes. Over the next three years, we plan to invest approximately EUR 8 million annually to make substantial improvements to our audit quality. The approach we are taking to achieve that goal is greatly appreciated, both internally and by external stakeholders. Section 4 includes an overview of our quality programme. We will of course keep you informed on a regular basis of our progress in the period ahead. There were many doubts expressed about the added value of the combination of Audit and Advisory. We are no longer allowed to combine advisory tasks with audit activities at OOB audit clients. High quality audit work increasingly necessitates the use of the specialist know-how of our consultancy business. And this is certainly true in specialist fields such as Risk Analysis, IT, Pensions and Derivatives. The Board of Management believes strongly in the One Firm concept. We can only provide our clients with higher quality services by having both these activities in-house. The combination of specialist know-how at Advisory and the quality of Audit provides enormous insight in our client’s business. This means we are in an even better position to point out risks in a range of areas. In the coming period, we will continue to do our utmost to provide our clients with even greater benefits from this combination through services that obviously meet the highest possible quality standards. © 2014 KPMG N.V. All rights reserved. 9 INTEGRATED REPORT 2013/2014 Building trust The key priority in this change is that we join forces to restore the trust that was lost. First and foremost, by performing work at the highest quality. We want no issues and no incidents. And if there is an issue, we have to be open and honest about it. There can be no cover-ups. This is why our communications are now more transparent and more frequent. An update on our significant events In terms of transparency, I would like to take this opportunity to update you on a number of the major events we faced in the past financial year. We are in open and constructive dialogue with the AFM on all our events and incidents, including their monitoring of our response to those events and incidents. During the year under review, we filed 11 formal incident notifications with the AFM (FY 12/13: 9). Ballast Nedam In December 2013, we reached a settlement with the Public Prosecutor’s Office in a case related to our conduct as auditors of Ballast Nedam in respect of payments the company had made to foreign agents in connection with its projects. Ballast Nedam had itself reached a settlement with the PPO in respect of those payments approximately a year earlier. Our EUR 7 million-settlement had a major impact on our financial result. The impact of this incident on our reputation was even greater, both at an organisational level and at a personal level for some of our partners. As an integral part of the settlement, we designed and implemented a range of additional compliance procedures which are intended to help put an end to such incidents once and for all. © 2014 KPMG N.V. All rights reserved. 10 This package of measures is extensive and involves adjustments to our governance and our quality control system, the installation of an external committee to safeguard public interest, a reassessment of our risk profile, greater emphasis on education and training, continued standardisation of our audit methods, and a large-scale culture programme to once again make ethics, integrity and quality our highest priorities. By the end of the 2013/2014 financial year, we had implemented a third of these measures. Matters such as a change in culture clearly cannot be put into place overnight. However all of these issues are now part of the True Blue programme of change and of the business plan for the coming year, so that we can together ensure that they are firmly embedded in the organisation and can closely monitor the progress made on this front. INTEGRATED REPORT 2013/2014 Imtech FAS Veen KPMG head office Amstelveen As reported last year, we reported a case of fraud at Imtech to the Supervisory Board. We recently reached agreement with Imtech N.V. and the Dutch Shareholders Association VEB on the participation in a compensation fund for shareholders who suffered losses as a result of the fraud at Imtech. We are taking part in this not because we failed as auditors but to prevent potentially lengthy and costly legal procedures, which would not be in the best interests of the shareholders, Imtech or KPMG. The investment initiative FAS Veen dating back to 2007, involving 23 people, 13 of whom still remain in our employ, is a matter that affects KPMG directly. After a number of small real estate investments, in 2007 FAS Veen acquired the old town hall in Blaricum in a 50/50 partnership with a project developer. The subsequent dispute regarding the contract was settled in 2012. An external law firm conducted an investigation into, among other things, compliance by the participating partners with the then prevailing applicable laws, regulations and KPMG policy. No relevant evidence was found that raised significant concerns for the Board in this respect. KPMG policy had already been changed in 2012 to prohibit investment initiatives like FAS Veen. Another incident relates to the development of the KPMG head office in Amstelveen. The Dutch Tax Authorities have taken the position that the subsidiary that was incorporated for this project filed an incorrect corporate tax return in 2010. Following this case the Board of Management decided to investigate the possibility of a collective pension scheme for equity partners, which safeguards both the interests of the equity partners and independence requirements. © 2014 KPMG N.V. All rights reserved. 11 The tax office has also reported the matter to the Public Prosecutor’s Office, which is currently investigating the matter. KPMG is cooperating fully with both parties. The investigation does not relate to any clients of KPMG. Since the investigation is still ongoing, we are currently not in a position to provide any further information on the matter. INTEGRATED REPORT 2013/2014 Stages 2 and 3: maintaining the momentum of change Over the past year, it has become clear that we as an organisation had drifted too far from our original DNA. Quality and integrity are now again at the heart of everything we do. Thereby we have returned to the core of our profession: being the trusted advisor of our clients and the trusted guardian of society as a whole. This should be the highest priority in everything we do, even if it means a potential loss of turnover. What I see and hear throughout the organisation is an enormous willingness to do this together. As an organisation, we have the momentum for change. I am proud of the passion and the willingness to change among our people. We have to maintain that momentum because there is still a lot of work to be done. Now that the situation is stable, we must continue to further strengthen our foundations before we can get back on the path to growth. These will be phases 2 and 3 of our approach. We will work on those foundations in financial year 2014/2015 on the basis of a solid business plan that we have drawn up together with the organisation. All the input from the dialogue sessions, with well over 2,000 colleagues, the Global People Survey among KPMG employees and the true blue programme have been incorporated in this plan. We are however aware that no matter how good our plans are, it is the © 2014 KPMG N.V. All rights reserved. execution that really matters if we are to once again exceed the expectations of our clients. This is why we are making a huge effort to improve the quality of our work and why we plan to make targeted investments of approximately EUR 8 million per year over the next three years. It is also why we have introduced a KPI framework with a healthy balance between a focus on employee engagement, customer satisfaction, quality, diversity, reputation and financial results. And it is why we will train our staff even better and on a more structural basis and why we will maintain a dialogue with our internal and external stakeholders. This is how we plan to be the standard for the rest of the sector. Since my arrival at KPMG, I have spent a great deal of time talking to clients, employees and other stakeholders. They appreciate the approach we 12 have initiated. They also appreciate the fact that we are not hiding and that we are open about matters that have gone wrong. They appreciate most of all the fact that we are taking action and looking forward. And we will continue to do so in the year ahead. In the current round of audit engagement rotations, many clients have opted to engage KPMG as external auditors and our advisory division also continues to grow. This shows that our clients place enormous trust in us. And KPMG International has expressed its full backing for our plans. We are making every possible effort to prove ourselves worthy of that trust and regain the trust we have lost. In this area, too, the organisation is clearly demonstrating that it is not only about talking about making improvements but pulling up the shirtsleeves and taking action. For instance, our auditors and consultants active in serving the financial sector are now organised in a single department. The responsibilities entrusted to this team over the past year included servicing and supporting 92% of the assests value of the stress tests at the Dutch banks. This team deserves a major compliment. And we are currently seeing a similar shift in our other sectors, where we are also now working on the basis of client centricity and quality rather than our own organisation. INTEGRATED REPORT 2013/2014 About this report Contents guide We support integrated reporting. Consequently this report contains not only our financial results but also the reporting on our quality control system, our ethical and independence policies and procedures, and the description of our legal and organisational governance. This is an integrated report, in which we account for an extraordinary and difficult year. Therein we outline the perspective for a sustainable future for KPMG. On behalf of my colleagues in the Board of Management and all KPMG colleagues and myself, I can assure you that we will do our utmost to regain the trust of our stakeholders, and that also means your trust. In section 2, you can read more about what we as an organisation believe in and represent. Section 3 provides an overview of the most significant topics based on various findings and the intensive dialogue we maintain with our stakeholders. Chapters 4-7 disclose the results for the past year. We have classified these results into our four strategic pillars: (i) the public trusts us, (ii) our clients see the difference in us, (iii) our people are extraordinary and (iv) operational excellence. Finally, the addenda provides information on our OOB audit clients, a glossary of terms and the Global Reporting Initiative (GRI) table since this report was drawn up on the basis of the G4 guidelines for sustainable reporting. On behalf of the Board of Management, Jan Hommen © 2014 KPMG N.V. All rights reserved. 13 INTEGRATED REPORT 2013/2014 Board of Management Han van Delden (1965, Male, Dutch national) Han van Delden is the Head of Markets & Clients in the Board of KPMG NL. Mr. van Delden serves a broad client base, particularly internationally oriented clients, both listed and non-listed entities. Commencing 2013 Mr. Van Delden was chair of Corporate Clients and as such part of the Audit Leadership Team. He joined KPMG in 1991 and became partner in 2001. From 2006 through 2010, Han was seconded to KPMG US in New York to serve the US based units of Dutch and other European clients. Bert Ferwerda (1960, Male, Dutch national) Jan Hommen is Senior Partner of KPMG NL and Chairman of the Board. Mr. Hommen’s experience spans over 40 years in the top segment of the US and Dutch corporate environment. He is the former CEO of ING Group, CFO en vice-chairman of Royal Philips and CFO of US-based Alcoa. Mr. Hommen was elevated to the status of Commander in the Order of Orange-Nassau in 2013. Bert Ferwerda is Chief Human Resource Officer in the Board commencing 1 November 2014. Mr. Ferwerda is a seasoned Human Resource professional with extensive experience gained from senior executive positions at ABN Amro, IBM and Rabobank, where he served as Global Head of HR. Prior to his responsibilities in HR, he worked in several sales and sales management and business unit management positions at IBM. Mr. Ferwerda holds a master’s degree in Business Management. Barbara Lamberts (1967, Female, Dutch national) Rob Fijneman (1964, Male, Dutch national) Barbara Lamberts is the Chief Financial Officer in the Board effective 1 November 2014. Ms. Lamberts was Board member and CFO of Child Care Netherlands (currently Partou). She holds a post master’s degree in controlling (Registered Controller ) and has extensive experience in finance and has held leadership positions, including ABN Amro and AEGON. Rob Fijneman is Head of Advisory in the Board of KPMG NL. Rob Fijneman joined KPMG in 1986 and became partner in 1997. During 1999 through 2009 he held various managing positions within IT Advisory and Risk Consulting. His main area of focus is Corporate Clients, both as lead partner and IT sparring partner. He holds post master’s degrees in Accountancy and IT auditing. Commencing 2004 Mr. Fijneman is professor of IT auditing at Tilburg University and Tias Business School. Jan Hommen (1943, Male, Dutch national) Andrew Cranston (1965, Male, British national) Marc Hogeboom (1967, Male, Dutch national) Andrew Cranston is Chief Operating Officer in the Board of KPMG NL and was COO at KPMG International (until 1 August 2014) . Prior to his Global COO responsibilities, Mr. Cranston was Managing Partner of KPMG in Russia and CIS (Commonwealth of Independent States). In that capacity, he was also a member of the KPMG ELLP, EMA and Global Boards. He also served as Head of Audit in Russia and CIS for 8 years. Before moving to Moscow, Mr. Craston worked for KPMG in the UK and Hungary and for investment bank Merrill Lynch in Germany. © 2014 KPMG N.V. All rights reserved. Mr. Hogeboom is the Head of Audit in the Board. Marc Hogeboom joined KPMG in 1990 and became partner in 2001. Mr. Hogeboom has served main financial services clients both in an Audit and in an Advisory capacity. Commencing 2011 he was the chair of Financial Services Audit. Mr. Hogeboom’s commitment to community service made him lecturer at Vrije Universiteit for financial accounting from 2004 to 2008 and chairman of the Supervisory Board of Omega - MCG child day care. 14 INTEGRATED REPORT 2013/2014 02 Vision & Strategy © 2014 KPMG N.V. All rights reserved. 15 INTEGRATED REPORT 2013/2014 S E PIR CONFIDE NC E IN Inspire Confidence. Empower Change + E M PO E + WER CH © 2014 KPMG N.V. All rights reserved. G N A We bring the fluidity, flexibility and sound judgment required to achieve sustainable and insightful change in the world, in our clients, our organisations and in our communities. Whether applied globally or locally, to the world’s biggest challenges or a market’s smallest issues we help enable informed decision making. That requires an understanding of facts and opinions embedded in the interactions between people, processes and systems. Hence, our strong belief in multidisciplinary teams of Audit, Tax and Advisory, where we foster independent views, input and dialogue, because “we” transcends “me”. 16 We believe there is power in deliberate action and that everything we do can positively impact those who come after us. That’s why we will always act with future generations in mind, with clear and complete vision. Helping make the world a better place by empowering positive change. We believe in individual responsibility, personal growth and dedicated teamwork. We serve the general public and clients with outstanding professionals that are alert, sharp observers with a hands-on attitude. We thrive in team collaboration and spirit building on mutual respect and fun. We believe in hard work and stretching ourselves to become more every day. INTEGRATED REPORT 2013/2014 The vision of true blue As a result of the issues we faced in the year under review, we face the challenge to regain trust from our stakeholders. We are committed to again conforming to our founding father’s principles of consistent delivery of high quality service by highly qualified professionals, making quality and integrity our absolute priorities. Our performance targets in this area are: • Strong external perception of our reputation • Dependable consistent high levels of quality • Robust Risk Management • We demonstrate social responsibility Our People are Extraordinary In May 2014 the Board initiated its true blue turnaround programme with 1 single objective: to again become the industry standard. We live up to our legacy and not only do the talk, but prove our relevance and contribution to society. True blue is being realised in three phases: • Create stability in and around the firm, •Strengthen our organisation and its output, and • Become the standard in the sector and grow our business. True blue is based on four pillars, underpinned by a culture geared towards quality (see figure 1). We place significant focus on ensuring that we deliver the quality of service that society and our clients expect by continually reinforcing the importance of quality and innovation across our firm. We want to ensure that we increase our added value by © 2014 KPMG N.V. All rights reserved. demonstrating the skills and behaviour our clients and stakeholders expect. The Public Trusts Us In our industry, relevance is closely tied to high quality services. And this is also the area in which the auditing profession is most under scrutiny by the general public. Public trust must be earned. Society gives us our license to operate. It is not a given. We want to be the trusted standard again in our profession. Our critical success factors in this area therefore are: • We are valued by investors and respected in our profession • We invest in the communities where we live and work • We have the courage of our convictions 17 The necessity of having the public’s trust is closely followed by having extraordinary people. KPMG has always been at the forefront of employee engagement and development with leading HR practices. We do have to strike a proper balance between nature and nurture as we do not believe in lifetime employment. What we do believe in, is helping employees to maximise their capabilities in reaching their next level and develop themselves to their full capacity. People are what makes us KPMG. We need to reconnect with our cultural heritage of high quality service delivered by highly qualified professionals. INTEGRATED REPORT 2013/2014 To underpin our commitment to our people we have formulated the following critical success factors: • We are caring and courageous and share a lasting pride in our firm • We are smart, curious and relish a challenge • We thrive on developing the leaders of tomorrow Our performance targets in this area are: • Our partners lead by example • Consistent high levels of engagement and performance • Diversity in our workforce Our performance targets in this area are: Our Clients see the Difference in Us We want to bring our collective Audit, Tax and Advisory knowledge to the market and thus contribute in finding solutions to complex problems our clients face. We believe that the combination of Audit and Advisory services benefits clients and stakeholders more than Audit only services. Specialist knowledge, such as IT Advisory, Corporate Finance (valuation) or Forensic & Integrity significantly add to the quality of the audit. Our clients also expect us to deliver Advisory services to assist them in resolving their issues and challenges. But we are strict in our compliance with independence standards: we do not offer all services to all clients. Our critical success factors in this area are: • We deliver quality that is unparalleled • We build enduring relationships • We bring leading insight and innovative solutions © 2014 KPMG N.V. All rights reserved. 18 • Top companies want to work with KPMG for ‘life’ • Leading multidisciplinary solutions that address our clients’ issues • Clients are positive about KPMG, its people and its solutions Operational Excellence We need to remain vigilant in the efficiency and effectiveness of our processes and procedures. Focus on keeping our own house in order is a responsibility, as this enables sustainable growth, minimises our ecological footprint and maximises our ability for value creation to stakeholders. Our critical success factor and performance target in this area is to: • Continuously renew and improve to pass a stronger and better organization to the next generation INTEGRATED REPORT 2013/2014 Realising our vision: values and true action Our purpose is part of our people change agenda. The Board took the lead in openly sharing their personal goals, ambitions and motivations and thereby inspiring our people. Our purpose is supported by our values, as documented in our Code of Conduct that is available to every KPMG professional on the desktop of their computers and on our intranet. We lead by example at all levels in a way that exemplifies what we expect of each other and our clients. We corporate citizens by broadening our skills, work together to bring out the best in experience our communities and perspectives through work in our communities. each other and create strong and successful working Integrity is a critical characteristic that stakeholders relationships. We respect the individual for who they are and for their knowledge, skills and experience as individuals and team members. seek the facts and provide insight by challenging assumptions and pursuing We expect and rely on. Therefore, above all we act with integrity and are constantly striving to uphold the highest professional standards, provide sound advice and rigorously maintain our independence. We debated these values as part of true blue facts to we strengthen our reputation provide insight and took specific notion of improvements needed in as trusted and objective business advisers. living our values. This is followed up as part of true We are open and honest in our communication and share information, insight and advice frequently and constructively and our communication managing tough situations with courage and candour. © 2014 KPMG N.V. All rights reserved. committed to our communities to act as responsible We are 19 action. INTEGRATED REPORT 2013/2014 Why are we here? This is answered by our Purpose, which is to Inspire Confidence and Empower Change. Purpose Vision People 1 2 3 Public Trust Clients 4 5 6 Operational Performance 7 8 9 KPIs 10 Why What 11 What do we aspire to be? This is answered by our Vision. Globally, we have set our Vision to be the Clear Choice. In Netherlands we are very explicit about what this means; to be the Audit and Advisory Firm that every other Audit and Advisory firm models itself on. In these challenging times, it is our role to set the New Standard. Our Vision has been translated into 4 keys areas: People, Clients, Public Trust, and Operational Performance. Concrete and measurable KPI’s have been set up for each of these areas. How do we achieve our Vision? BP Businessplan BP Values BP BP BP 1 team This is answered by our Business Plan and our Values. Our Business plan sets out the actions that are required to realize our Vision and embeds our Values - which are our compass to the behaviours that define our culture. The True Blue program The True Blue program has been an important accelerator to drive change. The key actions arising from the 7 work streams are now embedded in the Business Plan. Over time, the activities of the work streams will be transitioned to the standing organization. Figure 1 / Connecting purpose, vision and action © 2014 KPMG N.V. All rights reserved. How 20 INTEGRATED REPORT 2013/2014 Value creation The concept of Integrated Reporting is particularly applicable to a professional service firm such as KPMG, because the value we create is not necessary fully captured by our financial performance or reported in our financial statements. As such, our performance should be judged against a broader spectrum as well. The IIRC framework for Integrated Reporting identifies 6 capitals that organisations use in their value creation: human, intellectual, manufactured, social, financial and natural capital. We refer to the IIRC Framework for further details about these capitals and the framework itself. The most significant capitals we use in creating value are human capital and intellectual capital as well as our social capital. We are a people business and without our people our service delivery would be non-existent. They are the vehicle for delivering quality and delivering our vision of being the standard in our sector, together with our collective knowledge, which is captured in our intellectual capital. Here we place © 2014 KPMG N.V. All rights reserved. our methodology and our unique way of working. Social capital pertains to the shared values we have and the contribution to our communities. The other capitals are supportive to the main capitals, being manufactured capital, natural capital and financial capital. We identify our office buildings, IT systems and car fleet we use as manufactured capital, whereas natural capital consists of the natural resources we consume (i.e. our ecological footprint). Financial or monetary capital is necessary to purchase, attract and retain the other capitals. Our value creation is based on our role in the “supply chain” of trust and informed decision making. Our contribution or value creation lies in our ability to leverage human capital and intellectual capital for the benefit of increasing social capital: by fulfilling our role impeccably as the trusted party in the economic markets and improving societal decision making by our knowledge and insights. 21 INTEGRATED REPORT 2013/2014 03 © 2014 KPMG N.V. All rights reserved. Stakeholder Dialogue 22 INTEGRATED REPORT 2013/2014 Who our stakeholders are KPMG NL actively seeks dialogue with its stakeholders about its contributions and performance. Table 1 lists the key stakeholder groups we distinguish and our ways of engaging with these stakeholders. These groups were identified on the basis of the parties that we impact with our service delivery. Stakeholder group Our way of engaging Clients, including those charged with governance Communication and engagement with our Audit and Advisory clients is as you would expect undertaken in many ways, such as through and during our service delivery, client satisfaction surveys, site visits by Board members and client events (e.g. roundtables). The Board has expressed its commitment to personally visit top tier clients. For Audit, we formally report to those charged with governance on the key audit matters and other audit findings, as well as on our independence. In addition, all of our PIE/OOB audit clients have an independence clearance process prior to us evaluating and accepting the engagement. In more general terms we communicate with supervisory board members through our Audit Committee Institute. We engage with our professionals on a daily (continuous) basis through internal communication channels, employee events, training on the job and through our performance management process and people survey. Board members regularly meet employees in local offices to discuss all aspects of true blue (this is also part of true action). Employees and partners of KPMG As we are a private partnership, shareholder information is also part of our engagement with our partners. Provided we can maintain our independence and ethical business conduct, we engage with government and politicians on a range of relevant business issues, predominantly related to audit quality through comments on exposure drafts of audit standards or audit regulation. Citizens, government and politicians As leading firm in the area of sustainability we have regular contact with NGOs, experts in the industry, opinion leaders and media to gain and provide insights and improve our own initiatives to help organisations in their journey in sustainable growth. Table 1 / Stakeholder groups and engagement © 2014 KPMG N.V. All rights reserved. 23 INTEGRATED REPORT 2013/2014 Stakeholder group Our way of engaging Regulators We are under supervision of the AFM and PCAOB regarding statutory audit engagements and from governmental inspection agencies for specific types of audit and assurance engagements. In addition, KPMG is in contact with the KPMG College of Regulators. We have periodic dialogue with the domestic regulator AFM on quality related issues and our response. We view upfront communication with the AFM as a way to improving audit quality in general. Communications with the actual users of financial statements is the most challenging part, due to these stakeholders being mostly anonymous and usually not formally organised with the exception of parties such as VEB and Eumedion. Users of financial statements, including professional bodies representing those users and media Our main interaction with this group of stakeholders is at the annual meeting of shareholders in which we comment on our role as auditors and through the issuance of our auditor’s reports. For owner managed businesses our communication is of course directly with owners. We provide training to journalists to assist them in understanding and interpreting financial statements. We have a Director of Corporate Communications to further establish dialogue with media and other interested parties. We interact with media and leading Dutch newspapers about our practices and issues and inform them of our performance and respond as proactively as we can to questions and queries. We participate in a number of working groups of our professional bodies to contribute towards building and maintaining high quality services. We participate in various universities as we deploy professors (full, associate and assistant) and lecturers to teach future generations of professionals and also to conduct more fundamental research to advance our understanding in the auditing, tax and advisory domain. Professional audit bodies and academia Table 1 / Stakeholder groups and engagement © 2014 KPMG N.V. All rights reserved. 24 INTEGRATED REPORT 2013/2014 Stakeholder expectations The stakeholder expectation map represents the summary of the topics stakeholders brought forward during interactions with the Board, our (lead) engagement partners and other professionals. The map is was first drafted in 2012 and validated in 2013 and 2014. It is an ‘as is-where is’ representation and therefore contains justified and unjustified expectations and thereby alludes to the so-called expectation gap that has been around for decades and that has resurfaced in the aftermath of the financial crisis and economic recession. Both Audit and Advisory expectations were expressed, but stakeholders did concentrate their attention towards the Audit function of our Firm. Advisory has attuned its portfolio with the (upcoming) expectations of clients and has geared itself towards solutions for Transformations, Cyber Security, Deal Services, Regulatory Compliance and Data & Analytics. We continue to further enhance our stakeholder dialogue for financial and non-financial reporting so that we provide relevant information that adds value to our stakeholders. Stakeholder expectation How it affects KPMG and our response Conduct high quality independent audits This is by definition vital to our quality brand. Without high quality audits we would lose a significant part of our value creation. And during the fiscal year under review we have been challenged on this topic. Independence is a given and the relevant standards were expanded to include a ban on advisory services for PIE/OOB audit clients. We invest in the continuous education of our professionals and conduct annual reviews of completed engagements to assess compliance against auditing standards. At the organisational level we conduct Partner Portfolio Reviews to assess the partners’ ability (in terms of time, experience, energy and resources) to deliver high quality audits. Shareholders want us to inform them more on our audit and key audit matters. KPMG is at the forefront of long-form reporting. We also increase our efforts to stand up and be recognised in general meetings of shareholders. Tell us more We are also challenged by stakeholders to be more expansive about the context and circumstances regarding KPMG itself. There are confidentiality constraints that limits the extent to which we can communicate even if we want to, but we do aim to be more transparent where we can. And this integrated report is an example of that transparency. Clients want our help in improving and growing their business(es) to the next level, which is in part why we are here. We do so in accordance with rules and regulations and as such do not provide all services to all clients. Help grow and improve We invest in new services that help clients improve in achieving their goals and additional investments are made to enhance our current portfolio as well. It is all about relevance. Table 2 / provides the details of these grouped expectations and how it affects KPMG. It also includes our response to those expectations. © 2014 KPMG N.V. All rights reserved. 25 INTEGRATED REPORT 2013/2014 The expectations of stakeholders can be summarised into the following categories: • Conduct high quality independent audits; • Tell us more; • Help grow and improve; • Employer of choice; • Data security and privacy; • Responsible and sustainable. Audit File Reviews FY 12/13 92% satisfactory How it affects KPMG and our response Employer of choice As we stated earlier, our people and partners are our main vehicle for our service delivery. The way they evaluate and engage with the organisation is paramount to our success. We, therefore, periodically benchmark ourselves against our main competitors and similar industries as well as other KPMG member firms to assess if we are on par in terms of HR practices and employment benefits. Obviously, we do not take pride in making negative headlines – deserved or not – but we are very proud of the way our professionals adjust and deal with those realities. Our true blue programme proves that. Data security and privacy With the increasing use of IT and the digitalisation of everything, we too are affected by expectations for data security and privacy. Our NITSO and CSM monitor compliance against KPMG International standards for data. A Privacy Officer oversees the recording and processing of personal information in accordance with regulations. Our security system meets the requirements of ISO 27001, for which we are certified. Responsible and sustainable As one of the thought leaders in the area of sustainability we are very aware of the impact of CSR on our business success, irrespective of the materiality of the actual impact. We face public scrutiny for our perceived conduct regarding the current head office in Amstelveen, the issues associated with audits performed by KPMG and private investments by individual KPMG partners. 85% AFM File Reviews FY 12/13 30% Stakeholder expectation satisfactory We have taken a number of initiatives to further reduce our ecological footprint, particularly for lease cars and buildings, which are our main areas that impact the environment. Our environmental management system is ISO 14001 certified. Advisory File Reviews FY 12/13 94% 93% satisfactory © 2014 KPMG N.V. All rights reserved. Table 2 / provides the details of these grouped expectations and how it affects KPMG. It also includes our response to those expectations. 26 INTEGRATED REPORT 2013/2014 Material reporting topics: linking stakeholder expectations with our strategic objectives Materiality assessment According to the GRI G4 reporting guidelines materiality is the scale of importance which warrants that a topic should be reported on. Material topics, however, are not equally important and therefore the level of disclosure may vary. The topics for consideration are identified using both internal and external factors. We have used the expectations expressed by our stakeholders (external) and our strategy (internal) to arrive at the material topics for reporting purposes. In addition, we have used the main elements of the GRI reporting framework to ensure we cover all the aspects identified in that framework.Figure 2 depicts the conclusions drawn from this process. Category Explanation Integrate Issues within this category are considered to be of such importance that inclusion in either the core strategy or Board level attention is necessary. These material issues are reported in the main sections of the Report. Manage Issues for this category are important to the value creation of KPMG and should therefore be closely managed. These issues require functional leadership attention and are reported in either the main body of the Report or in the appendices depending on relations with core issues. Monitor Issues in this category may be of influence on business performance, but are not considered to require specific Board or leadership attention. These issues are ordinarily only reported in the appendices of the Report. Accept This category relates to all other issues that could potentially impact business performance, but that are considered to be directly not applicable to our business or that are deemed immaterial. These issues are not reported on. Table 3 / Impact assessment response Depending on the impact on stakeholder expectations and business performance, the particular topic is identified as a reportable material issue. The Board classified the topics into four categories: © 2014 KPMG N.V. All rights reserved. 27 INTEGRATED REPORT 2013/2014 PUB L I C TRUST ACCEPT M O N I TO R L L MA N AG E N IO M E P X E R O R A N C G I N T E R AT E MA N AG E 23 S S N TA T U IO 16 FO R P X E G I N T E R AT E R R E E 18 M A H E P N E S K S E C 17 E LD IN O 12 B OP 11 ACCEPT 15 9 14 M O N I TO R 21 10 M A N AG E H 13 G I N T E R AT E 1 NT DIFFERENC S E M O N I TO R E FO CLIE R LD E H P 2 22 24 26 E S 3 K S 5 4 TA E ACCEPT TA T IN 27 G I N T E R6AT E 7 25 C S T I O N A L E XC E L L E A R N E U CE B 29 28 S 8 E TA C S 19 MA N AG E L M O N I TO R Operational Excellence 20.Remuneration 21. Reputational Issues 22. Sustainable Profit 23. Supply Chain/ Procurement 24.Community 25.Energy/Emissions 26.Water 27.Materials 28.Biodiversity 29. Human Rights Figure 2 / Our materiality assessment ACCEPT © 2014 KPMG N.V. All rights reserved. R AO R Client Difference 9. Personal independence 10. Reputational Issues 11. Compliance & Claims 12. Data Security 13. Client Satisfaction 14. CPE Extraordinary People 15. Talent Development 16.Diversity 17.Employment 18.Equality 18.Discrimination 19. Occupational Health & Safety L 20 EXT Public Trust 1. High Quality 2. Independence 3. Help Grow & Improve 4. Open Communication 5. Reputational Issues 6. Thought Leadership 7. Innovation 8. Regulatory Change P D I N A RY P E O LE 28 INTEGRATED REPORT 2013/2014 Topics included in this Report Report boundary The following table provide the reader with a reference guide for material topics as per the aforementioned materiality matrix and the relevant section in this report. This report pertains to KPMG N.V. and its subsidiaries. KPMG Meijburg & Co is a separate member firm of KPMG in the Netherlands and is therefore not included in this report, except where specifically stated. In addition, the identified material issues relate to both the Audit and Advisory functions of KPMG NL. Material Topic Strategic alignment Chapter reference Client satisfaction Clients see the Difference in Us 6 Compliance & Claims The Public Trusts Us 4 Data Security Clients see the Difference in Us 10 Diversity Our People Are Extraordinary 5 Employment Our People Are Extraordinary 5 Firm independence The Public Trusts Us 4 High Quality The Public Trusts Us 4 Innovation, thought leadership and helping grow and improve The Public Trusts Us 4 Open Communication The Public Trusts Us Whole report Personal independence Clients see the Difference in Us 4 Remuneration Operational Excellence 7 Reputational issues The Public Trusts Us Introduction Sustainable profit Operational Excellence 7 Talent development Our People Are Extraordinary 5 © 2014 KPMG N.V. All rights reserved. 29 On the subject of supply chain different views exist on our role within the supply chain. Yes, we are part of a larger eco-system regarding financial information and process improvement, but we believe that the nature of the industry we are in dictates that we are (part of) our own supply chain (primary supply chain): we should maintain independence and ensure that our service delivery is not significantly dependent on particular suppliers or subcontractors, notwithstanding the fact that we directly impact clients and other stakeholders due to the very nature of our services, which is to provide confidence and support change for enhanced decision making. As such, this report only details issues and results that pertain to our Firm and its group companies. INTEGRATED REPORT 2013/2014 We are part of other entity’s supply chains (secondary supply chain) in our capacity as endusers for products and services, such as IT, lease cars and energy consumption. We exercise our influence to the extent possible to motivate and move suppliers to deliver products and services that are aligned with our purpose, corporate values and strategy. KPMG is a member of UN Global Compact and have committed ourselves to its 10 principles. We also implemented a Supplier Code of Conduct. Comparability of information Only in a limited number of cases have we restated indicators to ensure comparability with the indicators for FY 13/14. We consider the adjustments to be immaterial in nature as they are mostly the result of either enhanced information or differences in presentation. © 2014 KPMG N.V. All rights reserved. External assurance We believe external assurance to both financial and non-financial information adds value to us and our stakeholders by attesting the disclosures as well as the underlying processes. Last year we indicated that we would seek external assurance on our major KPIs. Given the efforts initiated as a response to the circumstances and events of the year under review we have had to postpone that decision. Knowing that assurance on non-financial information is a journey, we still wanted to make a start. We have therefore decided to ask our auditors Grant Thornton to provide limited assurance key indicators in each of our strategic pillars, namely: Quality Performance Reviews; Client Satisfaction and Net Promoter Score Employee Engagement and CO2 emissions. Our ambition is to extend the external assurance next year to cover all key indicators that we use for bringing our firm to the top. 30 INTEGRATED REPORT 2013/2014 04 The Public Trusts Us © 2014 KPMG N.V. All rights reserved. 31 INTEGRATED REPORT 2013/2014 Dependable consistent high levels of quality Audit Internal inspection programme During the fiscal year 57 Audit partners and 54 Advisory partners/directors were subject to internal reviews equalling 40% (40% in FY 12/13) and 33% (47% in FY 12/13) of the respective total population of partners eligible for selection. Advisory 2013/2014 2012/2013 2013/2014 2012/2013 Number of engagements reviewed 62 72 55 76 Number of partners reviewed 57 60 54 74 Table 4 / Number of partners reviewed Audit The details in figure 3 display an increase in the category ‘Satisfactory’ against a decrease in the category ‘Performance Improvement Necessary’ (PIN). The number of engagements graded ‘unsatisfactory’ also decreased compared to previous fiscal year. The scores of our internal reviews have been appraised by a non-local lead reviewer from KPMG International, consistent with prior years. Our international rating is equal to the previous fiscal year. Table 5 reports the findings per engagement file. Although these have decreased from 117 in FY 12/13 to 97 in FY 13/14 and the average number of findings per file equalled at 1.6 per file, we are not satisfied with the overall findings (we refer to our root cause analysis regarding these findings). These efforts include investments in further standardisation of basic audit procedures and increased training hours for client facing audit professionals. ICFs reported 2013/2014 2012/20131 ICFs for Satisfactory engagements 82 (1.4) 70 (1.1) ICFs for Performance Improvement engagements 12 (3.0) 29 (3.6) 3 (3.0) 18 (6.0) 97 (1.6) 117 (1.6) ICFs for Unsatisfactory engagements Total ICFs for all reviewed engagements Table 5 / Number of ICFs in total and average per Audit engagement 1 © 2014 KPMG N.V. All rights reserved. The amounts for FY12/13 have been readjusted for information purposes as a pending file review from FY12/13 was finalised, resulting in a slight increase in the number of ICFs from 109 to 117 in total, while the average per engagement file decreased from 1.7 to 1.6. 32 INTEGRATED REPORT 2013/2014 Following mitigating actions by audit teams in response to the individual ICFs none of the PIN or U rated engagement scores warranted adjustments to the previously issued audit opinion. The main drivers for less than satisfactory grading were as follows: • Lack of audit evidence in relation to the audit of a subsidiary in combination with limited partner involvement. • Insufficient disclosure notes to the financial statements regarding breaches of loan covenants. Less than satisfactory ratings Engagements rated as Less Than Satisfactory (LTS) included the following specific issues: AUDIT QPR • Incorrect opinion issued for so-called “403” financial statements. The engagement team used our semi-automated toolkit, but failed to appraise the selected opinion against the engagement specific context. Not to the extent that stakeholder decision making has been impaired in any material respect. • No documentation found with respect to the impact of ineffective IT General Controls on automated components of manual controls pertaining to completeness of reported revenues. 2013/2014 2012/2013 4% 6% 2% 11% 4% 11% 11% 11% 4% 4% 85% 85% 85% Satisfactory Satisfactory Performance Improvement Necessary Performance Improvement Necessary Unsatisfactory Unsatisfactory 85% Satisfactory Performance Improvement Necessary 92% Unsatisfactory Satisfactory Satisfactory Performance Improvement Necessary Performance Improvement Necessary Unsatisfactory Unsatisfactory Figure 3 / Audit QPR results FY 13/14 and FY 12/13 © 2014 KPMG N.V. All rights reserved. 33 Advisory Advisory changed its scoring grades during FY13/14 (figure 4) and now awards engagements specific scores for setup and execution, without an overall grading. Furthermore, in 2014 yellow scores, although exceptions noted, are considered ‘satisfactory’, whereas in previous years these yellow scores were regarded less than satisfactory. Red scores, with major exceptions noted that present a risk to KPMG, like previous years are considered unsatisfactory. Due to this change, results from this year are not like for like comparable to last year’s QPR. Drivers for the less than satisfactory grades for the set up phase of Advisory engagements mostly relate to untimely completion of engagement acceptance procedures or non-compliance with certain aspects of those acceptance procedures (all non-independence related). In addition, changes in the engagement scope (e.g. a seconded staff engagement evolves into an advisory engagement or vice versa) are not properly reflected in the risk management documentation. INTEGRATED REPORT 2013/2014 External inspections (Audit) The findings for the execution phase of the engagement mostly relate to limited proof of sufficient and timely partner involvement or non-compliance with Advisory documentation standards / requirements. ADVISORY QPR 2013/2014 2012/2013 5% 1% 0% 7% 4% 11% 11% 4% 4% 11% 11% 4% 85% 85% Satisfactory Performance Improvement Necessary 93% Unsatisfactory 85% Satisfactory Performance Improvement Necessary 94% Unsatisfactory 85% Satisfactory Satisfactory Satisfactory Satisfactory Performance Performance Improvement Necessary Improvement Necessary Performance Performance ImprovementNecessary Necessary Improvement Unsatisfactory Unsatisfactory Unsatisfactory Unsatisfactory Figure 4 / Advisory QPR results FY 13/14 and FY 12/13 © 2014 KPMG N.V. All rights reserved. AFM In September 2014 the AFM presented its findings of selected engagement file inspections at Big 4 audit firms. Their inspection pertained to the audits for fiscal year 2012. For KPMG 7 out of 10 engagements were rated unsatisfactory by the AFM. We have followed up on all findings at individual engagement level. We have made any necessary corrections in accordance with auditing standards. After receiving sufficient and relevant audit information, we have concluded that the previously issued audit opinions do not require any amendment. PCAOB The PCAOB performed an inspection on PCAOB audit engagements during FY12/13. During the year under review no additional inspections took place. The findings on our quality control system, besides those in connection with engagement specific findings, pertained to improvement opportunities in the way we perform and document journal entry testing as well as the way in which we document independence checks at engagement level when engaging technical specialists, such as tax or valuation experts. In conformity with PCAOB policies and procedures we finalised our action plans prior to the deadline (i.e. August 2014). 34 NBA In the non-statutory audit domain we were reviewed by the NBA in September 2013. We received their final report in December 2013. The review team reviewed 40 engagements (50% voluntary statutory audits, 50% review engagements and other assurance). The team concluded that the vast majority of engagements (95%) were performed in accordance with auditing standards. The NBA team also assessed our quality control system, particularly around continuous education, and found the system to be satisfactory with no observations for further improvement. Other ISO audits for ISO 9001 (general quality framework), ISO 27001 (data security) and ISO 14001 (environmental management) all resulted in positive evaluations and continuance of our certification in the designated areas. The ISO audit teams provided us with further improvement observations that have been translated into actions plans for implementation. Engagement reviews by the Dutch Ministry of Education resulted in satisfactory findings as well. INTEGRATED REPORT 2013/2014 Root Cause Analysis (RCA) Following the internal and external inspection results we immediately took action with an in-depth root cause analysis. RCA was performed on three levels: engagement level, unit level and function-wide level. Engagement level At the engagement level we find evidence that suggests that some of the engagement findings appear to be pervasive in nature, including: • Large(r) partner portfolios lead to increased work pressure and thereby less adequate supervision and review. • Inadequate supervision and review of audit documentation obtained due to either time pressure or prioritised as low by engagement teams. • Knowledge of KAM in relation to specific technical matters (particularly audit of investments/participations; other areas were engagement specific). © © 2014 2014 KPMG KPMG N.V. N.V. All All rights rights reserved. reserved. • Accurate compliance with ISA 600 requirements applicable to the audit of consolidated financial statements, such as documentation of work done on component audits. Some documentation issues (erroneously not including all component reports in the file, not referring to own work on components in other files, not documenting changed scoping) seem to evolve from time pressure. • Less than expected levels of professional scepticism. Unit level On the basis of the engagement inspections we identified a number of specific areas to which most of the ICFs and AFM findings relate, being: 35 • Financial Statement quality • Basic Audit Skills • Senior staff involvement • (Responding to) Fraud risk • Training on the Job • Professional Scepticism • Rationalising issues (to be immaterial or non-significant) We asked each Audit unit (National Practice, Financial Services and Corporate Clients) to host a number of workshops in which these areas are discussed to identify the reason we are unable to excel (i.e. what drives the inspection findings) in these areas. We collected and summarised their results and in aggregate the following root causes where identified. Different means to the same end Although we have one audit manual and one toolkit we have noted a variety of working papers and audit strategy decisions. This is not necessarily a bad thing, as clients and engagements require fit for purpose audits, but it does not contribute to a consistent application of our methodology per se. Standardisation of routine audit procedures can promote that consistency as well as quality of documentation, thereby enabling professionals to better exercise their professional judgment. INTEGRATED REPORT 2013/2014 Project Management From our root cause analysis we derive that we do not particularly see an audit as a standalone project, requiring specific project or task management. Quality project management will drive a ‘first time right’ approach and ensures that we tackle issues and challenges more upstream in the audit process. Portfolio Management As with the analysis at engagement level, we see that in some instances large(r) partner portfolios lead to increased work pressure and thereby less adequate supervision and review. We have implemented Partner Portfolio Reviews to assess and appraise the size and manageability of individual portfolios. Where necessary we perform so-called lifts & shifts in that we transfer clients and engagements to other partners, including relocating partners to other offices if warranted. Team collaboration Today’s society has become more and more automated and auditing is no different in that respect. It enables us to be more efficient, increase audit quality through application controls and decrease traveling time for meetings and file reviews. The downside of that automation is, © 2014 KPMG N.V. All rights reserved. however, that we also tend to favour remote access and for example postpone file reviews to other time slots of the day since the ability to access files 24/7 is literally at our fingertips. The result is that we spend less time working as a team on the same location and subsequently spend less time discussing and debating our planned audit approach, the observations made and assessment thereof and our audit conclusions as part of training on the job, a key component in the education of any auditor. Tone at the top and discipline This root cause is in essence the proverbial ‘walking the talk’ and not just ‘talking the walk’. We need to increase our discipline and address substandard performance rather than using softeners and downplaying non-compliance. Functional level Overall, we have concluded that neither our methodology nor tooling are at the primary root of the issues. They obviously play a role and improvement can be made, but they are not the defining factors. The application of the methodology and actual usage is where our challenge begins. As a profession we not only have to appraise financial statements against laws and regulations (‘is it compliant?’), but also 36 appraise against societal implications and conventions (‘does it make sense?’). It comes down to our mind set: the identity (what an auditor should be) we hold for ourselves determines the way we think (mind set) and act (application) and consequently our audit quality performance. And, our focus is determined in part by the way we measure and manage. Ultimately you trigger behaviour by measuring what you deem to be important. And our performance indicators were not necessarily geared towards quality. We need to activate our audit quality. INTEGRATED REPORT 2013/2014 Activ8 Your Audit Quality We have dubbed our quality improvement efforts Activ8 Your Audit Quality. This underpins the essence of the programme: we need to align organisational and individual levels and both play an intricate role in the success of the programme. Activ8 starts with our people. Continuous attention to technical training and professional development is a necessity for our (future) audit professionals. In addition to having extraordinary people, we need to be outstanding at performing the audit basics. We therefore continue our efforts for standardisation and off shoring and on shoring of routine audit procedures and specialised data & analytics processing. Finally, we need to increase our stage presence. We wish to increase our presence during annual general meetings of shareholders. Auditors must step up to the plate and be recognised for their work and their findings. From 2015 onwards, we plan to invest approximately EUR 8 million per year for the next three years in audit quality, as well as investing in recruiting more professionals. In all, Activ8 Your AQ has 5 pillars as shown in figure 5. AQ quality programme Innovate Communicate Manage Change Monitor Quality & Compliance Data & Analytics Stage presence More external auditors Dedicated OPR teams Standardisation Integrated Reporting Thought Leadership Lift & Shift Performance management KPMG Bootcamp Long-form reporting Stakeholder Dialogue Improve Figure 5 / Activ8 Your AQ quality programme © 2014 KPMG N.V. All rights reserved. 37 Project & Time Management Command Central INTEGRATED REPORT 2013/2014 AQ quality programme 5 pillars Improve We have implemented a number of actions to immediately increase our quality & compliance, including a mandatory audit training of 5 days for each client-facing audit professional, real-time engagement file coaching and mentoring, and an individualised learning programme to enable professionals to increase their audit and soft skills. As said, we continue our efforts to further drive standardisation and automation. Ultimately, this will result in consistency in approach and documentation. The newly developed Standardised Audit Approach (SAA) is being promoted by our Service Delivery Centre for those engagements suitable for standardisation. In addition to standardisation we also increase our continuous training to audit professionals, particularly in the KPMG Way and the ‘way we do things around here’, including knowledge of our rich heritage. © 2014 KPMG N.V. All rights reserved. Innovate Manage Change The efforts within innovate are geared towards increasing the added value of our audit services. This includes harnessing the specialised knowledge of our Advisory services for inclusion in our audits and increased use of data and analytics to drive audit quality decisions. We also continue to support the long-form reporting to shareholders of listed entities, as we have last year and as we pioneered many years ago (in 1934 KPMG issued a long-form report to the Philips’ annual report). Communicate If there is one common denominator it is the number of hours there are in a week, irrespective of your background, your profession or where you live. All efforts then for managing change come down to having time to actually make the change. We introduce new ways of managing our projects and our time to ensure we focus on progress instead of movement. Monitor We wish to increase our presence in the Annual General Meeting of Shareholders by presenting our approach and findings in a manner that makes an impact. This to ultimately change the perception of the profession as a whole. We want to radiate the KPMG difference to all stakeholders. That begins with our presence in the boardroom and dialogue with executive and supervisory board members. Our partners therefore need to be excellent communicators in that respect. In addition, we want to better serve society by issuing our collective knowledge through thought leadership, opining articles and papers. This also means more discussion and debate with our stakeholders to ensure that our services will continue to meet their needs. We also need to strengthen our links with universities as they provide the theoretical education to our potential audit professionals as well as conduct research to increase the quality of audits. 38 This final pillar is geared towards measuring our progress against our ambitions. We plan to form dedicated QPR teams to assess the level of engagement quality on an ongoing basis. This enables us to actively implement mitigating actions should issues and findings so warrant rather than after the engagement completion and on a yearly basis. We have implemented a system of balancing controls to manage the performance of our audit professionals. This means designing KPIs that measure quality performance and also actually appraises professionals against benchmarks and targets. Non-compliance is dealt with where necessary and we do not shun from taking appropriate sanctions against professionals that repeatedly do not meet the KPMG quality requirements. INTEGRATED REPORT 2013/2014 Consultation with specialists To assist audit engagement professionals in addressing difficult or contentious matters, we have protocols for consultation and documentation of significant accounting and auditing matters, including procedures to facilitate resolution of differences of opinion on engagement issues. Consultation with a team member at a higher level of responsibility than either of the parties with differing opinions usually resolves such differences. In other circumstances, the matter could be escalated through the chain of responsibility for resolution by technical specialists. In exceptional circumstances, a matter may be referred to the Head of Audit, Head of Department of Professional Practice, Head of Quality & Risk or, ultimately, the Chairman of the Board of Management. © 2014 KPMG N.V. All rights reserved. 2013/ 2014 2012/2013 Accounting 226 218 Auditing 241 261 85 58 124 85 86 76 309 456 1,071 1,154 Fraud Risk Management Independence Legal / Contract Review Total Table 6 / Number of consultations (Audit & Advisory) In absolute terms, consultation has decreased by 7%, mainly due to reducing the topics requiring mandatory contract unit consultation for the Advisory services. The increase in independence and risk management consultation is the result of mandatory audit firm rotation. Fraud consultations (previously included in audit consultations) increased in comparison to the previous fiscal year, in part due to the increased awareness and attention for fraud risk in the financial statements audit. 39 INTEGRATED REPORT 2013/2014 Robust Risk Management Firm Independence Table 7 provides the details of the revenue of the audit organisation for FY 13/14 (table 8 shows FY 12/13) segmented to type of service delivery. All amounts are shown in EUR millions based on our taxonomy of services and per legal client entity. Statutory legal audits are those where there is the legal obligation to have the financial statements audited by an independent auditor. These come in two forms: audits for OOB clients and for non-OOB clients. Other auditor reports and assurance (related) reports include non-statutory legal financial statement audits, attestation reports, sustainability assurance, SAS70 attestation, IT audits etcetera. Advisory engagements consist of all engagements not bearing an element of attestation or audit (i.e. consultative engagements). It should be noted that the revenue details for FY 12/13 were based on management reporting Other auditor reports and assurance (related) reports Other statutory audits Statutory legal audits at the time of issuing last year’s report. The Firm implemented a new central IT system and the database infrastructure regarding the specific segmentation presented in table 7 was under construction at the time. Advisory engagements for OOB audit clients are prohibited commencing 1 January 2014. The figures for FY 13/14 reflect that prohibition taking into account the contracts that we were finalised in conformity with the legally set grace period. Total Assuranceservices Advisory Total Statutory legal audits – OOB clients 40.2 77% 6.4 12% 3.5 7% 50.2 95% 2.4 5% 52.5 Statutory legal audits – other clients 85.5 62% 21.1 15% 11.4 8% 118.0 86% 19.1 14% 137.2 51.8 69% 10.1 14% 61.9 83% 12.8 17% 74.8 19.1 45% 19.1 45% 23.7 55% 42.8 141.4 100% 141.4 Statutory audits – other clients Other auditor reports and assurance (related) reports – other clients Other clients KPMG Corporate Total 125.8 28% 79.4 18% 44.1 Table 7 / Segmentation of revenue per type of service in EUR million (FY 2013/2014) © 2014 KPMG N.V. All rights reserved. 40 10% 249.2 56% 199.4 44% 448.6 INTEGRATED REPORT 2013/2014 Other auditor reports and assurance (related) reports Other statutory audits Statutory legal audits Total Assuranceservices Advisory Total Statutory legal audits – OOB clients 40.2 53% 19.7 26% 4.5 6% 64.3 85% 11.3 15% 75.6 Statutory legal audits– other clients 84.5 59% 32.1 22% 7.2 5% 123.8 86% 20.6 14% 144.3 52.6 71% 3.6 5% 56.2 76% 17.9 24% 74.1 8.4 36% 8.4 36% 14.8 64% 23.2 136.0 100% 136.0 Statutory audits – other clients Other auditor reports and assurance (related) reports – other clients Other clients KPMG Corporate Total 3.0 124.7 27% 104.3 23% 23.6 Table 8 / Segmentation of revenue per type of service in EUR million (FY 2012/2013) © 2014 KPMG N.V. All rights reserved. 41 5% 252.6 55% 200.6 45% 456.2 INTEGRATED REPORT 2013/2014 Compliance with the internal system of quality controls Personal independence In FY 13/14 over 86 (2012: 94) of our professionals across the Firm were subject to Personal Independence audits. Professionals displaying non-compliance were sanctioned in accordance with our disciplinary policy for independence. Any professional providing services to an audit client is also required to notify the Ethics & Independence Director if they intend to enter into employment negotiations with that audit client. For FY 13/14, 24 sanctions (FY 12/13: 21) were issued on a total staff number of 2,925 FTE. As in previous years, none of the infringements pertain to personal loans from (SEC) audit clients, insurance policies with (SEC) audit clients and bank deposits or credit cards at (SEC) audit clients. In addition, no infringements pertain to prohibited services. Furthermore, all infringements were corrected. © 2014 KPMG N.V. All rights reserved. 2013/2014 2012/2013 Partners Other Total Partners Other Total Audit 5 7 12 3 5 8 Advisory 4 8 12 6 7 13 Support Staff - - - - - - Total 9 15 24 9 12 21 Table 9 / Ethics & Independence infringements / sanctions per function 2013/2014 2012/2013 2 1 22 20 PHAC notifications - - Late submittal of compliance letters - - 24 21 Prohibited investments KICS updates Total Table 10 / Infringements per type 42 INTEGRATED REPORT 2013/2014 Other non-compliances Our mission of becoming the undisputed standard in the industry implies that we should have our act together also in terms of compliance with our internal system of quality controls. To this effect we have again expanded our compliance monitoring activities during FY 13/14. As a consequence, we see an increase in the total number of non-compliances as compared to last year. We distinguish behavioural non-compliance and quality related non-compliance. Table 11 provides an overview of those instances in which we deemed the issue to be quality related. Where warranted, we improved our system of quality controls. All non-compliances were followed up by either the Compliance Officer or the respective Heads of Function depending on the seriousness of the non-compliance. 2013/2014 2012/20132 4 - Client and Engagement Acceptance procedures 27 3 Professional Code 24 1 3 - 11 10 Consultation of specialists 6 3 Engagement Performance 52 13 127 30 Tone from the top Integrity Confidentiality Total Table 11 / CO Issue Tracker per element and per function 2 Adjusted for comparison purposes. © 2014 KPMG N.V. All rights reserved. 43 INTEGRATED REPORT 2013/2014 We demonstrate social responsibility Social Investments Community programmes As part of our purpose, KPMG believes it is important to be an active and responsible player in the community and is aware that investing in employment adds value to make the economy and society permanently stronger. In addition, we believe it is important that everyone has an opportunity to work and have income. Certain groups in society are less fortunate in this area. Our community programmes focus on sharing our skills and knowledge with a strong preference for educational programs or projects to strengthen non-profit organizations. In our previous reports, we highlighted our community programs like BRIGHT, the Millennium Villages Project and the Battle of the Business Bands. For the purpose of this reporting year, we have chosen to feature two other projects, Enactus and the Low Car Diet. There are a large number of organizations that support the cause for these vulnerable groups in society with strong effort and without the expectation of monetary returns. The deployment of knowledge and expertise of our KPMG professionals can actively contribute to improving the position of these groups in the society. We want to do this on a structural base and are currently making initial small steps by offering a place in our client facing engagement teams to people from vulnerable workforce groups. © 2014 KPMG N.V. All rights reserved. Enactus KPMG NL, KPMG International and KPMG practices around the world have been actively involved in Enactus for many years. Enactus is an international organization that connects student, academic and business leaders through entrepreneurial-based projects that empower people to transform opportunities into real, sustainable progress for themselves and their communities. In the Netherlands Enactus offers 44 KPMG an interesting network and platform for our people who take up a programme manager role by supporting the student teams and at the same time work to further develop their professional skills e.g. time management and coaching abilities. KPMG offers ‘in kind’ knowledge and skills to Enactus, including the programme managers, participation in the Enactus jury, and is a member of the Enactus executive board. Low Car Diet This year ten KPMG partners and employees participated in the Low Car Diet programme. The goal of the Low Car Diet is to introduce and actively experience the use of sustainable mobility and to support the implementation of sustainable mobility in the business process. A challenge for our KPMG-professionals, but as a result of their efforts they have saved 31% in carbon emissions. We focus to reduce our carbon footprint, participating in the Low Car Diet raises awareness about sustainable mobility and contributes to this goal. INTEGRATED REPORT 2013/2014 The Future of the Auditing Profession Following the chain of events regarding the profession the Dutch Institute of Accountants (NBA) launched an initiative to discuss and design the future of auditing in the summer of 2014. We want to regain our position as the industry’s standard and therefore KPMG actively participated in both the working group and the steering group of the initiative with Caspar Segers and Marc Hogeboom respectively representing KPMG. We gained insights from the working group’s stakeholder dialogues and group analysis as well as confirmatory evidence that we are on the right track by implementing new governance structures and a new remuneration policy for external auditors. We fully support the proposed measures of the working group, which have either been incorporated into our quality agenda or for which separate projects have been identified. © 2014 KPMG N.V. All rights reserved. Innovation and thought leadership In order to serve our clients in helping them grow and improve we invest in our Strategic Growth Initiatives supported by a central Innovation Programme led by the Partner in Charge of Innovation and supervised by an Innovation Council. These Strategic Growth Initiatives are as follows: • Dynamic Audit; • Regulatory Change; • Data & Analytics; including our successful proposition Facts2Value • Extreme Digital; • Asset-Based Services. The common thread we foresee in the majority of these initiatives is that of Big Data and Big Data Grids. We recruited a number of Big Data specialists from non-traditional sources already in the past, such as CERN in Switzerland, to strengthen our knowledge and experience in this area. We are already seeing the first results of these efforts as projects with clients are launched. 45 We are also investing in data analytics as part of our audit services. We have developed specific tooling to assist our audit professionals in analysing large streams of account information in identifying abnormal transactions or even fraud. We have aligned our national efforts with other KPMG member firms to maximise our return on investment as well as expanding our global mind set. Our thought leadership and contributions in the abovementioned areas can be found at http://www.kpmg.com/nl/nl/topics. Through our KPMG Blog our professional publish their thoughts and insights on a variety of business related topics to trigger our clients and make them aware of issues and challenges. Any finally, we continue to share our collective insights through our social media app KPMG One, which is available for all our stakeholders through the iTunes App store and shortly also at Google Play. INTEGRATED REPORT 2013/2014 05 © 2014 KPMG N.V. All rights reserved. Our People are Extraordinary 46 INTEGRATED REPORT 2013/2014 Our partners lead by example Leadership engagement Partner and staff involvement (Audit) In light of the events we faced in the year under review, the general public particularly reproaches us for the fact that we did not lead by example. We have therefore made this topic a focal point in our strategy towards regaining public trust. We measure leadership engagement through feedback from our people survey, which is conducted in full on a bi-annual basis. We do pulse surveys (in October of each year), which focus on specific questions. We just started the survey for 2014. As such we do not have the formal measurement available for FY13/14, but from the FY13/14 survey we know that the trend is a negative one. In addition, we score our partners using lead by example feedback from the people survey. The lead by example index is also aggregated to the overall leadership index. As part of the NBA Future-initiative, the working group suggests that audit firms disclosure their partner involvement on audit engagements. We already use this measure as part of our Partner Portfolio Reviews. The figures below present the % of engagement hours for client facing staff per staff level and type of engagement. Here we see a significant decrease as compared to last year and our professionals have sent a very clear message to the partnership. We followed up with intense and in-depth dialogue sessions where partners invited professionals and fellow partners to their homes to discuss the purpose and values of KPMG and devise how to improve our culture of delivering quality through collaboration. © 2014 KPMG N.V. All rights reserved. OOB Legal Audits OOB Other Audits FY 13/14 FY 13/14 FY 12/13 FY 12/13 0 10 20 30 40 50 60 0 70 10 Legal Audits Other Audits FY 13/14 FY 13/14 FY 12/13 FY 12/13 0 10 Partner 20 30 EQCRP 40 50 Senior Manager 47 60 70 Manager 80 0 Staff IT Audit 10 20 20 Advisory 30 30 Total 40 40 50 50 60 60 70 80 INTEGRATED REPORT 2013/2014 Consistent high levels of engagement and performance General One of the key drivers of quality is ensuring that our professionals have the skills and experience appropriate to contribute to our value creation in such a way that we deliver on our vision of being The Clear Choice. This requires recruitment, development, promotion and retention of personnel and a robust capacity and resource management processes. We believe it is essential to attract and retain the best people. During FY 13/14 383 (FY 12/13: 385.4) FTEs joined our Firm, whereas 558.9 (2012: 474.9) FTEs left the Firm. The retention rate – the percentage of professionals remaining with the Firm – amounts to 84.0% (FY 12/13: 82.1%). Overall absenteeism remained low at 2.7% (FY 12/13: 2.7%). We actively manage our highpotential talent pool across our group through our Emerging Leaders Programme, in which currently 55 people are enrolled (FY 12/13: 35). Of those Emerging Leaders 29% is female (FY 12/13: 31%). Partners Employee engagement Employee engagement is measured through the Employee Engagement Index (EEI) and the Performance Engagement Index (PEI), both as part of the people survey. The EEI measures © 2014 KPMG N.V. All rights reserved. Audit Advisory Corporate Total 85 56 8 149 Professionals 1,261 934 - 2,195 Support staff 103 59 419 581 1,449 1,049 428 2,925 92 62 13 167 Professionals 1,264 1,075 - 2,339 Support staff 104 66 455 625 1,460 1,203 468 3,131 FY 13/14 Total FY 12/13 Partners Total Table 12 / FTEs per function per FY employee motivation to contribute and display organisational citizenship behaviour (trust, respect, growth and development), whereas the PEI measures commitment to excellence (client service, service quality and continuous improvement). The EEI has decreased compared to last year from 59 to 47, mainly due to negative media attention for KPMG and the effect it has on employee satisfaction in combination with decreased trust in leadership. The Board has therefore decided to measure this on a quarterly basis commencing FY 14/15. 48 INTEGRATED REPORT 2013/2014 Skill development and knowledge contribution We provide knowledge and support to professional bodies such as the Dutch Institute for Auditors (‘Nederlandse Beroepsvereniging Accountants’), the Dutch Council for Accounting Standards (‘Raad voor de Jaarverslaggeving’) and the Dutch Institute for IT Auditors (‘Neder­ landse Orde van Register EDP Auditors’) for the development of new standards, guidance or methodologies. In addition, we contribute to thought leadership by educating new generations of professionals through university positions. In total, the KPMG community includes 7 professors, at least 19 PhD’s and 8 professionals starting or doing their PhD-research. When we implemented our new IT information system last year, we also implemented a new cost centre structure. As a result, last year’s figures are not fully comparative to current year’s figures. We have therefore opted not to © 2014 KPMG N.V. All rights reserved. report last year’s figures. During FY 12/13 our professionals spent an average of 5.1% (FY 11/12: 6.3%) of their available hours on training. During the year under review we increased our training requirements for the annual Audit training from 2 days to 5 days. The additional time was geared towards quality related findings from AFM and QPR reviews. As we stress the importance of training and development, we expanded our monitoring on training attendance and completion since mid FY 12/13. This resulted in 129 violations of our training policies and procedures (FY 12/13: 44). Cost (EUR Average hours 1,000) per FTE FY 13/14 FY 13/14 Audit 4,495 176 Advisory 2,716 60 528 11 7,739 104 Business Support Total Table 13 / Average training cost and hours per function per FY 49 At its core, we apply uniform employment benefits for all employees, including wages and salaries, which also means that a priori there are no differences in pay between male and female employees. The actual salaries and bonuses are based on the performance evaluation, and we actually do see a difference between male and female employees in both base pay and bonus pay. In terms of base pay the overall ratio for female professionals is 85.0% against male professionals (FY 12/13: 85.5%) and for bonus pay this ratio is 56.8% (FY 12/13: 45.9%). INTEGRATED REPORT 2013/2014 Diversity in our workforce Diversity is a challenging subject in terms of gender as well as in terms of cultural background and diversity in personalities. We have implemented specific diversity targets for a number of years now and gradually we increasingly see the results of those targets. Figure 6 provides the details for female diversity in percentage per job level for Audit and Advisory combined. We have had success in diversifying our partner population and witness an increase from 7% to 10% per 1 October 2014. Relatively speaking the population as a whole remains male dominated. Other ranks remain stable compared to last year. Overall, however, we do not meet the requirement of 30% as set by diversity standards. We will therefore further upscale our efforts in this particular area and have The second diversity category we have identified is that of ethnic diversity, which has become increasingly important given the changing demographics of society in the Netherlands. As figure 7 shows we again see results from our efforts as cultural diversity increases over the years. In comparison to last year we see a decline at senior levels, particularly in the rank of directors. We are in the process of analysing the root causes behind that decline. FY 14/15 will bring specific mitigating actions towards cultural diversity, partially based on the scientific in-house research we performed last year. Gender balance 2,925 35 30 Absentism 25 Partner 15 Senior Manager Partner Manager Director Director 30 Manager 20 Ass. Manager Senior Manager Supervisor/Adv. Manager Ass. Manager 25 10 Supervisor/Adv. 15 20 Senior 10 Senior Ass. Manager Trainee/Jr. Adv. Supervisor/Adv. Trainee/Jr. Adv. 515 5 Senior 10 0 okt-10 okt-11 okt-12 okt-13 Figure 6 / Female diversity per job level © 2014 KPMG N.V. All rights reserved. okt-14 5 Trainee/Jr. Adv. okt-10 okt-11 okt-12 okt-13 okt-14 0 Figure 7okt-09 / Ethnic diversity perokt-11 job level okt-10 50 okt-12 okt-13 34% 66% 2,7% FY 12/13 2,7% Partner 2040 Director 35 Senior Manager FY 12/13 fte 3,13fte 25 40 0 already included diversity as a specific strategic KPI for FY 14/15. The % of female Board members is currently 15%. INTEGRATED REPORT 2013/2014 06 © 2014 KPMG N.V. All rights reserved. Our Clients See the Difference in Us 51 INTEGRATED REPORT 2013/2014 Top brands want to work with KPMG ‘for life’ National network turnover Audit Advisory Market presence Tax 256 245 210 207 150 146 2013 / 2014 2012 / 2013 Figure 8 / Network revenue in EUR million (FY 11/12 Audit adjusted for comparison purposes). KPMG Accountants N.V. Statutory legal audits 115 130 2013 / 2014 Other services 125 127 2012 / 2013 KPMG is one of the Big 4 professional service firms with a significant position in Listed Clients and Financial Services. Revenue per service line is presented in our financial statements disclosure and depicted in figure 8. All revenue is generated within the Netherlands and although we distinguish regions within the Netherlands for management control purposes, there are no specific differences to be reported thereto. Figure 9 provides the details for the Audit revenue of the Firm. No audit client accounted for more than 10% of the total fees received by the Firm over the last two years. Over the last 5 years, we have seen a decline in audit revenue, mainly as a result of economic downturn and increased audit fee pressure. We expect this decrease in revenue to continue for our Audit services as we continue the mandatory firm rotation for PIE/OOB audit clients. As we aim for long-term relationships with our clients, we will undertake initiatives to become preferred supplier for advisory services for all clients where we will rotate off as auditors. Figure 9 / Segmentation of revenue for the audit organisation. © 2014 KPMG N.V. All rights reserved. In terms of network revenue KPMG ranks 4th among the Big 4 firms (FY 12/13: 4th) with a market share of roughly 25% in terms of total Big 4 revenues. Tax is a separate member firm within the KPMG network and is therefore outside our sphere of governance. Mandatory firm rotation The recent proposals due to mandatory firm rotation evidence that KPMG is considered a strong successor to client’s current audit firms. KPMG historically has a large representation in PIE/OOB audit clients and for which we will no longer be able to provide audit services for the next 8 years, such as for AkzoNobel, Heineken, and Royal Philips. We have rotated off from 11 clients and were able to win 13 clients, including ING, DSM and Unilever. Mandatory Firm Rotation 52 13wins INTEGRATED REPORT 2013/2014 Clients are positive about KPMG, its people and its solutions We operate a formal programme (Client Insights NL) where we actively solicit feedback from management and those charged with governance on the quality of specific services that we have provided to them. The feedback that we receive from this programme is considered by the operating firms and individual client service teams to ensure that we continually learn and improve the levels of client service that we deliver. Any urgent actions arising from client feedback are followed up by the engagement partner to ensure that concerns on quality are dealt with on a timely basis. Our client satisfaction ((Net Promoter Score) decreased from 47.6 to 42.9 during the year under review. This decrease unfortunately reflects the current general reputational perception of KPMG, particularly for Audit where the NPS decreased from 48 to 36.4 and Advisory stabilising at 46.1 from 47.2 last year. Overall client satisfaction (see table 14 where the combined scores for ‘very satisfied’ and ‘satisfied’ are shown) has decreased slightly compared to last year as clients have been more neutral about their satisfaction, which resonates with the decreases in Relationship and Added Value. © 2014 KPMG N.V. All rights reserved. Following media attention and overall client satisfaction we also see similar decreases in the scores for our brand attributes, with the exception of the score for Global Mind set. Table 15 provides the combined scores for ‘completely’ and ‘to a high extent’ for our brand attributes. FY 13/14 (%) 92.2 FY 12/13 (%) 96.1 94.1 Overall satisfaction 96.7 90.4 Relationship 89.7 82.2 Quality of Service 88.1 Added Value Table 14 / Satisfaction scores (FY 13/14 n=231 and FY 12/13 n=185) FY 13/14 (%) 82.1 83.2 Passionate FY 12/13 (%) 70.4 73.6 Value Adding 66.1 67.1 Forward Thinking Table 15 / Brand Attributes scores (FY 13/14 n=231 and FY 12/13 n=185) 53 64.8 61.6 Global Mindset 74.8 77.3 Expert INTEGRATED REPORT 2013/2014 07 © 2014 KPMG N.V. All rights reserved. Operational Excellence 54 INTEGRATED REPORT 2013/2014 Sustainable Profit The financial figures for the Firm are presented in the financial statements section of this report from page 129 onwards. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU IFRS). The consolidated financial statements have also been drawn up in accordance with Section 362(9), Book 2 of the Netherlands Civil Code. Discussion of trends and results Revenue decreased in the financial year by 1.7% to EUR 449 million. Profit before income tax increased by 6.4% to EUR 70 million. Revenues dropped 2.9% in Audit and increased slightly in Advisory by 0.7%. Personnel costs decreased by 6.6% mainly explained by a decrease in the number of FTEs of 6.3%. The decrease in FTEs was mainly caused by a decrease in FTEs in Advisory. The average number of partners and staff decreased by 206 FTEs (6.6%) to 2,925 FTEs. The number of partners decreased by 18 FTEs to 149 FTEs. The number of professional staff has decreased by 144 FTEs (6.2%) to 2,195 FTEs, while the number of support staff has dropped by 52 FTEs (9.2%) to 515 FTEs. The decrease in professional staff is due to a decrease in Audit of 3 FTEs (0.2%) and a decrease of 141 FTEs (13.1%) in Advisory. Part of this decrease is explained by more work performed by the KPMG firm KGS in India. The dedicated team for KPMG N.V. in India has grown by 40 FTEs to 135 FTEs. As of 1 November 2014 the Board of © 2014 KPMG N.V. All rights reserved. 55 Management comprises 1 female and 6 male board members. The Board of Management is aware of the 30% diversity criterion with respect to female board members and the goal still is to meet this criterion, although this will be a longer term scenario since new board members have just started in their role. The other operating expenses increased by EUR 10.8 million (8.6%) mainly explained by the settlement of EUR 7 million with the Public Prosecution Office other settlements and the adjusted tax return 2010 regarding the development of the building in Amstelveen, and the provisions formed for vacant offices space. The profit before tax in Audit decreased by EUR 6.9 million (8.0%) and the profit before tax in Advisory increased by EUR 24.7 million (58.7%). The decrease in Audit is mainly explained by a reduction in revenues and investments in quality. The increase in profit before tax in Advisory is explained by a lower number of staff (141 FTEs) generating revenues slightly higher than previous year. Corporate costs increased due to the Ballast Nedam settlement, high legal costs and the provision for vacant office space. Income tax expense is high compared to previous year due to the provision formed as a consequence of the INTEGRATED REPORT 2013/2014 uncertain tax position 2010 KPMG Gebouw II B.V. the corporate vehicle for the development of the building in Amstelveen. Fees paid to partners under management agreements decreased by EUR 3.3 million (5.3%). Investments in property, plant and equipment remain limited and were only made in replacement of computer and communication equipment. The investments in intangible assets relate to the acquisition of Innovation Factory B.V. (in previous year Bridging Solutions B.V. and Conquaestor B.V.). Material investments in hours have been made in innovation projects in Audit, like Dynamic Audit, and within Advisory for example in Big Data. Financing is provided by loans from partners. At the end of the year this amounted to EUR 39.5 million, an increase of EUR 0.1 million compared to previous year (EUR 39.4 million). During the past financial year, cash increased by EUR 24.7 million. This is mainly explained by higher net cash inflow from operating activities. The organisation is exposed to price, credit, liquidity and cash flow risks in the normal course of its business. As a result of the size and © 2014 KPMG N.V. All rights reserved. diversity of clients of KPMG, the price, liquidity and cash flow risk is minimal. KPMG does not make use of financial derivatives and follows procedures and guidelines to limit the size of the credit risk with each counterparty and market. The cash is placed with banks which have a credit rating of rated A or higher. With regard to services still to be invoiced and receivables there were no significant concentrations of credit risk on the reporting date. For a more detailed explanation see note 24 in the financial statements. In the current economic conditions we expect a slight decline in revenue. As a result of the legislation to rotate audit firms and an analysis of our current good market share in the top segment, we expect a further decline in Audit revenues in 2015. Audit firm rotation will result in more opportunities for Advisory and we expect Advisory revenues to increase slightly. We also expect to further grow in Advisory due to further acquisitions of Advisory businesses. 56 Due to more investments in our audit quality and change programme, we expect no growth in profitability in the coming financial year. The total number of staff in The Netherlands is expected to decline slightly as a result of the decline in revenues and a further build-up of capacity in India to assist our professionals in The Netherlands. Investments are related to possible acquisitions in Advisory and continued investments in innovation. Financing by partners is expected to remain at current levels. The launch of our change programme “true blue” gives us confidence regarding the future and emphasises the importance to invest in the long-term success of our organisation, especially in our people and the quality of our services. INTEGRATED REPORT 2013/2014 Net promotor Score 42.9 FY 12/13 47.6 We refer to our 2013/2014 Financial Statements for further details. Audit Advisory Corporate Total 244,711 204,656 -743 448,624 584 3,232 -3,816 - Other income - 1,712 16,974 18,686 Total income 245,295 209,600 12,415 467,310 79,325 66,876 -76,245 69,956 Revenue Revenue from intersegments Profit before tax Table 16 / Segmented financials for KPMG N.V. for FY 2013/2014 (in EUR 1,000) Audit Advisory Corporate Total 252,347 200,833 3,015 456,195 298 5,671 -5,969 - Other income - - 14,923 14,923 Total income 252,645 206,504 11,969 471,118 86,222 42,148 -62,613 65,757 Revenue Revenue from intersegments Profit before tax Table 17 / Segmented financials for KPMG N.V. for FY 2012/2013 (in EUR 1,000) © 2014 KPMG N.V. All rights reserved. 57 INTEGRATED REPORT 2013/2014 Partner remuneration The management fee that is payable to an equity partner is remuneration for professional services performed and for entrepreneurial risk. Partners must make their own pension arrange­ ments and pay social security costs from this fee. The level of the management fees payable to individual partners reflects their roles and specific responsibilities as well as corresponding levels of performance and to a certain extent reflects growth based on seniority in the initial years. For non-equity partners and directors, a salary scale, set annually by the Board of Management, applies. This scaling depends on the role and the responsibility of a the individual. A bonus incentive can be granted for a non-equity partner’s or director’s past year performance. The amount of that incentive is proposed by the respective leadership teams for Audit and Advisory and is approved by the Board of Management. © 2014 KPMG N.V. All rights reserved. Partner remuneration varies with the grading of each partner, the partner’s performance and the overall profitability of KPMG N.V. At the start of each financial year, after advice from the leadership team for Audit and Advisory, the Board of Management determines the grading of each individual partner. At the end of the financial year, the Board of Management has the discretion to grant variable income depending on performance relative to agreed targets. The partner assessment process is monitored and the individual rating is determined by the Board of Management after consultation with the Remuneration Committee (see also Appendices). The Firm appraises partner performance against the relevant performance criteria. Quality & Risk metrics are part of these criteria and partners are assessed on the partner’s quality of services provided and compliance with internal and external regulations. The specific Quality & Risk Metrics are listed in table 20. 58 A (continued) substandard performance on quality and compliance has a negative effect on partner remuneration and on their continued association with the Firm. Within our performance management process we distinguish 5 internally developed scales an external auditor can obtain during the annual appraisal process: NI for Needs Improvement, SP- for Inconsistent Performance, SP for Strong Performance, SP+ for Highly Effective Performance and EP for Excellent Performance. Criteria supporting each of these scales were also internally developed. As the scales and criteria incorporate the impact of quality as well as other factors, the performance ratings / grading do not necessarily 1:1 reflect compliance with external laws and regulations. INTEGRATED REPORT 2013/2014 Partners with NI or SP- scores are, however, closely monitored for quality purposes and where considered appropriate or necessary, the leadership team for Audit or Advisory will take requisite action. The tables 18 and 19 displays the scores throughout the partner population. Audit Rating • Members of the Board of Management will be paid a fixed salary with a variable component set at a maximum of 10%. They will no longer be eligible for profit shares; Advisory 2013/2014 2012/2013 2013/2014 2012/2013 NI 3 3 1 3 SP- 5 5 2 6 SP 62 68 33 35 SP+ 16 14 18 16 2 3 1 3 EP Commencing 1 October 2014 the remuneration policies for partners have changed. The new partner remuneration model focuses on quality, measurable performance and long term impact. The main elements of the new model are: • The remuneration of partners will be linked to performance focused on criteria for the realization of quality requirements, the motivation of employees and client satisfaction. Not meeting these quality requirements may result in individual profit shares being withheld. • The introduction of a deferred profit-sharing scheme and a claw-back scheme. Audit partners will have a deferred profit-sharing scheme, under which KPMG retains 30% of the variable profit payment each year. This retained profit will be released after a period of six years. Both Audit and Advisory partners will be subject to a claw-back scheme, under which KPMG will be able to recover any damages for demonstrably culpable conduct from individual partners’ profit shares. Table 18 / Performance Management scores for equity partners Audit 2013/2014 Advisory 2012/2013 2013/2014 2012/2013 NI 1 1 - 7 SP- 2 1 8 11 SP 35 25 34 27 SP+ 17 19 18 21 EP 6 3 5 6 • The exit package for partners will be limited. The period of notice is reduced from one year to six months. And when leaving, a partner will receive a maximum of one year’s salary, depending on the number of years of service at KPMG (was 2 years). Table 19 / Performance Management scores for non-equity partners © 2014 KPMG N.V. All rights reserved. 59 INTEGRATED REPORT 2013/2014 Follow up on quality performance Metric Potential Impact Compliance Letter availability Negative if not available Compliance with Continuous Professional Development Negative if not met Acting as Professional Practice Partner Positive if on par or above Acting as Risk Management Partner Positive if on par or above Acting as eAudIT Change Manager Positive if on par or above Acting as Quality Performance Reviewer Positive if on par or above Quality System Infringements Negative if sanctioned Regulatory findings Negative if occurred Quality Performance Review ratings Negative if LTS (Less Than Satisfactory) or U (Unsatisfactory) A specific analysis was done on engagements rated as less than satisfactory to assess their pervasiveness. The Board has followed up on all external auditors with pervasive quality related issues. This resulted in actions such as revoking a partner’s mandate to sign audit reports, postponing promotions to more senior levels within the firm, monetary fines, and in some cases termination of management contracts. Table 20 / Quality & Risk Metrics © 2014 KPMG N.V. All rights reserved. 60 INTEGRATED REPORT 2013/2014 Sustainability performance KPMG is committed to further decreasing its CO2 emissions. Following the global ambition set by KPMG International, KPMG NL aims to contribute to a 15% reduction in Net Greenhouse Gas Emissions per FTE by 2015 (from 2010 baseline). This year, we were able to better collect the data on our gross usage as well as arriving at more accurate conversion factors. Sustainability performance is measured per calendar year and hence lags a year behind our fiscal year. The CO2 conversion factors developed by KPMG International are based on generally accepted conversion protocols such as DEFRA. For air flights detailed factors are available per type (economy class, business class, et cetera). Conversion for car travel is done per litre. Category 2013 2012 2011 4,685 5,067 5,368 11,157 8,701 13,705 97% 95% 94% Paper usage (in kg) 115,686 219,429 221,974 Total waste (in kg) 477,868 621,650 613,423 Recycled waste (in kg) 321,891 390,966 429,730 Water usage (in 1,000 litres) 15,566 20,598 30,187 Air travel (in 1,000 km) 22,501 27,017 22,767 5,037 4,140 5,269 5,973 4,910 8,851 12,350 12,407 12,722 2,751 3,300 2,776 63 - - Gross CO2 emission 21,137 24,348 24,558 Emission reductions (renewable energy and VER) -21,137 -24,348 -24,558 Natural gas consumption (in 1,000 kWh) Electricity consumption (in 1,000 kWh) To further decrease our carbon footprint, the Board of Management supports the staff departments of Human Resources, Facilities, Mobility, CSR and Finance to collaborate on their actions, such as, encouraging the use of economical (hybrid) cars, electric cars, use of electric taxis, company bicycles, promotion of fuel-efficient driving, and to encourage HALO and web meetings. Renewable electricity consumption Car travel (in 1,000 litres) Category 2013 2012 2011 Gas 0.1819 0.1748 0.2038 Electricity 0.4590 0.4625 0.5660 Petrol 2.3018 2.3000 2.3117 Diesel 2.6502 2.6300 2.6676 Other 1.4906 1.4900 1.4918 Rail 0.0300 0.0350 - Air flights (average) 0.1631 0.1639 0.1667 CO2 emissions (in tonnes) Electricity, Heating & Cooling Car Travel Air Travel (average) Train travel Table 21 / Conversion factors per KPMG International Table 22 / Environmental data3 3 © 2014 KPMG N.V. All rights reserved. 61 As KPMG NL shares its offices and facilities with KPMG Meijburg & Co, the figures in this table represent the combined data. INTEGRATED REPORT 2013/2014 Supply Chain Management KPMG Sustainability supported our organization in the further strengthening and embedding of responsible procurement in our purchasing process. One of the findings was that it is imperative to strengthen governance regarding Corporate Purchasing. At the same time sustainable topics, such as environment, climate and social impact in the Netherlands’, are reported as specific focus areas to drive through to our top 20 suppliers during requests for proposals and/or the re-negotiation of contracts. By doing so KPMG safeguards its leading role as a service provider to our clients, but we also continue to manage the corporate purchasing processes by being active in creating shared value at the highest levels of our supply chain. In a world where transparency is taking annual reviews to another level, it is essential to be in control, to distinguish ourselves in the market, and report clearly on our ambitions and results regarding responsibility in the chain as well. Corporate Purchasing cooperates more closely with KPMG Sustainability and Corporate Responsibility on tender requests to our top 20 suppliers. Alzheimer Lab As one of the founding fathers KPMG is proud to be part of Alzheimer Lab. Alzheimer Lab is a co-creation of McKinsey, &samhoud and KPMG. It is a challenging one-year programme for future leaders of organizations that on the one hand accept the challenge to raise money for the VUmc Alzheimer Center on a structural base and on the other hand work on their (social) entrepreneurship skills, creativity and personal development. Alzheimer’s is the epidemic of the 21st century. One in five people will get some form of dementia. Ten percent of people with dementia is younger than 65 years. This number is only increasing. The cause is largely unknown. Anno 2013 Alzheimer’s disease is still incurable. The Alzheimer Lab is designed as a platform to connect talents in wide networks. It offers the possibility for organizations to take responsibility © 2014 KPMG N.V. All rights reserved. 62 by developing talent through a programme of inspiration and unexpected challenges. Being close to the science network it enriches innovative power of future leaders and its organizations. The teams consist of researchers from the Alzheimer Center VUmc and two top talents of participating leading companies in the Netherlands with the goal to share knowledge, experience and capabilities to raise as much money as possible money for scientific research for the Alzheimer Centre VUmc over a period of 12 months. Engagement KPMG International is signatory of the UN Global Compact since 2002. The UN Global Compact asks companies to embrace, support and enact, within their circle of influence, a set of core values, the ten business principles, in the areas of human rights, labour standards, the environment and anti-corruption. In the Netherlands we monitor these values through our professional and supplier code of conducts, and partly report about it in our integrated annual report. On top of that, every business participant of the UN Global Compact INTEGRATED REPORT 2013/2014 commit to issue an annual Communication on Progress (COP) report. KPMG International composes the report for the entire network. For a third consecutive year KPMG NL participated in the Dutch UN Global Compact Network. In this network our peers share their feedback on our most recent COP report. The comments from our peers confirm our struggles as a network organization: it is challenging to have a consistent approach to supply chain management, living wage and human rights for example. Due to the network structure of KPMG and the role of KPMG International, we are somewhat limited in how we can holistically present information in our COP report. It is up to the member firms to communicate in a transparent manner about the progress with regard to the ten business principles. For the coming year, the COP report will be fully integrated into the International Annual Review. KPMG International will not be issuing a standalone report. KPMG NL supports this process and if topic related, we will deliver content for the International Annual Review. © 2014 KPMG N.V. All rights reserved. In the past year, in alignment with our purpose, we (under)signed the following covenants and initiatives: the Green Deal ‘New Social Capital’ This Deal enables a coalition of 13 large companies to cooperate with civil society organizations on making visible their impact on nature and the well-being of people. The parties will work together with the Dutch Ministry of Economic Affairs. the Covenant ‘de Ambitie van Zuid’ We strive to achieve a proportionate contribution to the agreement from the social contract (100,000 jobs in 2026) by contracting employees with a labour disability in the primary process of our organisation. We make arrangements with suppliers on the deployment of workers with an employment disability and focus in business networks on inclusive labour markets and the participation of people with disabilities. Finally, we are in dialogue with the government about the (im)practicality of participation and / or a quota for knowledge-intensive firms and communicate about the results as reached. 63 the Sustainable Development Goals and the Post-2015 agenda Business Manifesto. The Sustainable Development Goals set out an ambitious agenda for all 7 billion of the world’s people, not just the poorest. Success will depend on the ability to mobilize different mechanisms from traditional overseas aid models delivered by governments, to new models of partnership requiring co-investment and collaboration by a diverse range of actors. It is a transition that KPMG worldwide acknowledges and is an ongoing process where KPMG International will take the lead in. INTEGRATED REPORT 2013/2014 08 © 2014 KPMG N.V. All rights reserved. Statement on effectiveness of quality controls and independence 64 INTEGRATED REPORT 2013/2014 Statement on effectiveness of quality controls and independence The measures and procedures that serve as the basis for the system of quality controls for KPMG Accountants N.V. outlined in this report aim to provide a reasonable degree of assurance that the statutory audits carried out by the Firm comply with the relevant laws and regulations. Because of its inherent limitations, the system of quality controls is not intended to provide absolute assurance that non-compliance with relevant laws and regulations would be prevented or detected. The Board of Management has considered: • The design and operation of the quality management systems as described in this report; • The findings from the various compliance programmes operated by the Firm (including the KPMG International Compliance Programmes and our local compliance monitoring programmes); Taking all of this evidence, the Board of Management confirms with a reasonable level of assurance that the system of quality control within the Firm operated effectively and a structured process to ensure that our professionals maintain their level of knowledge and skills, including continuous professional education, is in place. Further, the Board of Management confirms that an internal review of independence compliance within the Firm has been conducted. Amstelveen, 2 December 2014 Jan Hommen Barbara Lamberts Andrew Cranston Han van Delden Bert Ferwerda Rob Fijneman Marc Hogeboom • Findings from regulatory and internal inspections; • Subsequent follow-up and/or remedial actions, in particular the true blue programme, as also explained in this report. © 2014 KPMG N.V. All rights reserved. 65 INTEGRATED REPORT 2013/2014 09 Governance & Risk Management © 2014 KPMG N.V. All rights reserved. 66 INTEGRATED REPORT 2013/2014 Who we are KPMG is the registered trademark of KPMG International and is the name by which the member firms of KPMG International are commonly known. The rights of member firms to use the KPMG name and marks are contained within agreements with KPMG International. FY 13/14 FY 12/13 2,925 3,131 149 167 % Male (FTE-base) 66% 67% % Female (FTE-base) 34% 33% % Female partners (FTE-base) 9% 7% % Female directors (FTE-base) 11% 15% 10 10 Total income (EUR 1,000) 467,310 471,118 Turnover statutory legal audits (EUR 1,000) 114,784 125,360 69,956 65,757 # of Independence infringements 24 21 # of QPR significant audit findings 97 117 % of satisfactory QPR scores 93 89 # of audit reports for OOB statutory audit clients 348 266 # of audit reports for other statutory audit clients 1,920 1,982 12,170 13,259 FTEs # of partners KPMG N.V. (also: the Firm or KPMG NL) delivers cross-border Audit and Advisory services to help its national and international clients negotiate risks and thrive in the varied environments in which they do business. We employ approximately 3,100 partners and professionals and operate out of 11 offices in the Netherlands with Amstelveen serving as headquarters. Further details of the service offerings can be found on the website at the following link: Service Portfolio. We also refer to the Appendices for further details. # of national offices Profit before tax (EUR 1,000) Table 23 provides an overview of the size and performance of our practice. # of audit reports in total Table 23 / Overview of KPMG NL (excluding Tax) © 2014 KPMG N.V. All rights reserved. 67 INTEGRATED REPORT 2013/2014 Governance Board of Management Public Interest Committee The Board of Management of KPMG N.V. is ultimately responsible for the organisation and the main pillars of our strategy, being Public Trust, Client Difference, Extraordinary People and Operational Excellence. The Board of Management includes the formal policy makers (‘beleidsbepalers’) in the context of the Dutch Supervision Act on Audit Firms (Wet toezicht accountantsorganisaties; hereafter Wta). Within the Board of Management the Head of Audit is responsible for the KPMG NL’s audit organisation. The Board of Management is supported by Partners in Charge for Quality & Risk and Markets. Board members are appointed to the Board by the Supervisory Board. All appointments are for an initial term of 4 years. Following our exit from KPMG Europe LLP we also need to re-install a national Public Interest Committee going forward to ensure we remain compliant with the NBA Audit Firm Code. We are in the final stages of appointing our independent and external Supervisory Board and its members will also form our Public Interest Committee. The Terms of Reference are available in draft and will be issued after the Committee is formally instituted. Supervisory Board The guiding principle of a Public Interest Committee, particularly in bringing an outside-in approach and view to the organisation, was in our view met with the appraisal by Jan Hommen and Jaap de Keijzer early May 2014. We refer to the introduction to this report for further details on their findings. The (regional) audit practice leaders for Corporate Clients, Financial Services and National Practice, together with the Functional Quality and Risk Management Partner Audit and the COO Audit form the leadership team Audit, chaired by the Head of Audit. The members of the leadership team Audit are co-policy makers in the context of the Wta and charged with the operational management of the audit organisation. This includes, for example: • Compliance with quality management system; • Supervision and appraisal of partners in all areas of competence; • Ascertain adequate follow up of compliance violations and incidents; • Manage professionals in terms of availability and ability to the level required to service our clients; Supervisory Board (soon to be solely constituted by external independent) members are appointed by the shareholder of KPMG N.V., and ultimately by the individual equity partners of KPMG in the Netherlands. All appointments are for an initial term of 4 years. © 2014 KPMG N.V. All rights reserved. Audit Leadership Team • Maintain and strengthen our market presence. 68 INTEGRATED REPORT 2013/2014 Board of Management Organisational structure The operational structure of the organisation is depicted in figure 10. In all, the Board distinguishes three main units: Audit, Advisory and Business Support. Audit and Advisory are subsequently organised around markets or solutions. The main units of Audit are Corporate Clients, Financial Services and National Practice. And for Advisory the main units are Management Consulting, Risk Consulting and Transactions & Restructuring. The Office of the Board consists of the Board’s Strategy Office, Corporate Communications and Legal Affairs. Business Support provides services to both Audit and Advisory. CQRMP General Counsel KPMG Europe LLP Office of the Board Management Team Audit Business Support Management Team Advisory Quality & Risk Management Group Marketing, Sales & Communications Human Resources Department of professiional Practice IT Services Figure 10 / Operational structure of KPMG NL © 2014 KPMG N.V. All rights reserved. 69 Finance Facilities INTEGRATED REPORT 2013/2014 Legal structure and ownership KPMG N.V. is the holding company of companies that operate in the Audit or Advisory business segments. KPMG Nederland B.V. holds the shares in KPMG N.V. and issued depository receipts to Coöperatie KPMG U.A. (‘the Cooperative) for these. Commencing 1 October 2014 the individual Dutch equity partners hold the shares in the Cooperative through their professional companies. On the basis of a management agreement the services of the partners are made available to the Cooperative. The Cooperative subsequently makes the services of the partners available to KPMG N.V. or its subsidiaries. Further details about KPMG International and its business, including our relationship with it are set out in the remainder of this section. Individual Dutch Partners 100% Dutch Partner Holdings 100% Dutch Partner Practices KPMG N.V. has its registered office at Laan van Langerhuize 1-11, 1186 DS Amstelveen, the Netherlands. The Firm’s consolidated financial statements for the year include the financial statements of the Firm and its subsidiaries and the Firm’s investments in associates. 100% KPMG Europe LLP Cooperative KPMG U.A. 100% The Company’s financial year runs from 1 October to 30 September of the following calendar year. The financial statements for 2013/2014 were approved for issuance on 2 December 2014. KPMG Nederland B.V. The legal structure within which the Firm was set during its fiscal year is depicted in figure 11. As per 26 September 2014 KPMG N.V. exited KPMG Europe LLP and from that date the full ownership of KPMG NL is back to its Dutch equity partnership. The legal structure remains essentially the same as seen in figure 11 with the exception of the KPMG Europe LLP related entities. KPMG MKB B.V. 100% KPMG N.V. KPMG Accountants N.V. KPMG Advisory N.V. KPMG Staffing & Facilities B.V. Figure 11 / Legal structure of KPMG NL4 4 © 2014 KPMG N.V. All rights reserved. Model Management Agreement 70 In the case of the Netherlands, each partner’s interest in KPMG Europe LLP was owned through a personal holding company wholly owned by the relevant partner. INTEGRATED REPORT 2013/2014 KPMG Europe LLP Legal structure and ownership KPMG Europe LLP itself was incorporated as a UK limited liability partnership under the Limited Liability Partnerships Act 2000. It was the holding entity for a number of KPMG operating firms in Europe. KPMG Europe LLP was wholly owned by its members (partners), all of whom work in KPMG firms in specific countries . As described in this section, all KPMG International member firms (including KPMG N.V. and KPMG Europe LLP) belong to one of four regions – Asia Pacific (ASPAC), the Americas, Europe, or Middle East and Africa (EMA). KPMG Europe LLP and its key operating firms all belong to the EMA region. As we remain committed to building the foremost professional services firm in Europe, the Middle East and Africa, we have also witnessed a significant change in the global marketplace in the past decade, especially in EMA. Many of our clients are looking for KPMG to demonstrate even greater borderless and ‘best team responses’. For this reason we have taken the opportunity to build on the © 2014 KPMG N.V. All rights reserved. success of our ELLP to create a broader KPMG EMA structure led by a new and reinvigorated leadership team. Network arrangements Legal structure The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative which is a legal entity formed under Swiss law. KPMG International carries on business activities for the overall benefit of the KPMG network of member firms but does not provide professional services to clients. Professional services to clients are exclusively provided by member firms. The structure is designed to support consistency of service quality and adherence to agreed values wherever in the world the member firms operate. One of the main purposes of KPMG International is to facilitate the provision by member firms of high-quality Audit, Tax and Advisory services to their clients. For example, KPMG International establishes, and facilitates the implementation and maintenance of, uniform policies and standards of work and conduct by member firms 71 and protects and enhances the use of the KPMG name and brand. KPMG International is an entity which is legally separate from each member firm. KPMG International and the member firms are not a global partnership, joint venture or partnership with each other. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to oblige or bind any member firm. Responsibilities and obligations of member firms KPMG is the registered trademark of KPMG International and is the name by which the member firms are commonly known. The rights of member firms to use the KPMG name and marks are contained within agreements with KPMG International. In these agreements, member firms commit themselves to a common set of KPMG Values. Under agreements with KPMG International, member firms are required to comply with KPMG International’s policies and regulations including quality standards governing how they operate and how they provide services to clients. This INTEGRATED REPORT 2013/2014 includes having a structure that ensures continuity and stability and being able to adopt global strategies, share resources, service multinational clients, manage risk, and deploy global methodologies and tools. Each member firm takes responsibility for its management and the quality of its work. Compliance with key quality standards (including key aspects of methodologies, tools and management of risk) are specifically assessed as part of the International Review Programmes. KPMG International can, at its discretion, take a number of actions against the firm concerned – including, ultimately, removal from the KPMG International network for any firm which fails to meet the required quality standards. KPMG International’s activities are funded by amounts paid by member firms. The basis for calculating such amounts (which is currently based on revenue) is approved by the Global Board and consistently applied to the member firms. © 2014 KPMG N.V. All rights reserved. Professional Indemnity Insurance A substantial level of insurance cover is maintained in respect of professional negligence claims. The cover provides a territorial coverage on a worldwide basis and is principally written through a captive insurer though a programme that is available to all KPMG member firms. Governance structure The key governance and management bodies of KPMG International are the Global Council, the Global Board, and the Global Management Team. The Global Council focuses on high-level governance tasks and provides a forum for open discussion and communication among member firms. It performs functions equivalent to a shareholders’ meeting (albeit that KPMG International has no share capital and, therefore, only has members, not shareholders). Among other things, the Global Council elects the Chairman for a term of up to four years (renewable once) and also approves the appointment of Global Board members. It includes representation from 56 member firms that are ‘members’ of KPMG International as a matter of Swiss law. Sub-licensees are generally indirectly represented by a member. 72 The Global Board is the principal governance and oversight body of KPMG International. The key responsibilities of the Global Board include approving strategy, protecting and enhancing the KPMG brand, overseeing management of KPMG International, and approving policies and regulations. It also admits member firms and ratifies the global chairman’s appointment of the global deputy Chairman and members of the Global Management Team. The Global Board includes the global chairman, the global deputy chairman, the chairman of each of the three regions (the Americas; Asia Pacific (ASPAC); and Europe, the Middle East, and Africa (EMA)) and a number of senior partners of member firms. It is led by the global chairman who is supported by the Executive Committee, consisting of the global chairman, the global deputy chairman, the chairman of each of the regions and currently three other senior partners of member firms. One of the other Global Board members is elected as the lead director by these Global Board members who are not also members of the Executive Committee of the Global Board (‘nonexecutive’ members). A key role of the lead INTEGRATED REPORT 2013/2014 director is to act as liaison between the Chairman and the ‘non-executive’ Global Board members. The list of Global Board members, as at 1 October 2014 is available in the International Annual Review. The Global Board is supported in its oversight and governance responsibilities by several other committees, including a Governance Committee; an Operations Committee, and Investments Committee; a Quality & Risk Management Committee; and a Professional Indemnity Insurance Committee. The lead director nominates the chairs and members of certain Global Board committees for approval by the Global Board. The Global Board has delegated certain responsibilities to the Global Management Team. These responsibilities include developing global strategy by working together with the Executive Committee. The Global Management Team also supports the member firms in their execution of © 2014 KPMG N.V. All rights reserved. the global strategy and is responsible for holding them accountable for commitments. It is led by the global deputy chairman, and includes the global chairman, the global deputy chairman, the global chief operations officer, global function and infrastructure heads and the general counsel. The list of Global Management Team members, as at 1 October 2014, is available in the International Annual Review. The Global Steering Groups are responsible for supporting and driving the execution of the strategy and business plan in their respective areas and act under oversight of the Global Management Team. The role of the Global Quality & Risk Management Steering Group is outlined in more detail in the KPMG International Transparency Report. Each member firm is part of one of three regions (the Americas, ASPAC and EMA). Each region has a Regional Board comprising a regional Chairman, regional Chief Operating or Executive Officer, 73 representation from any sub-regions, and other members as appropriate. Each Regional Board focuses specifically on the needs of member firms within their region and assists in implementation of KPMG International’s policies and processes within the region. Further details about KPMG International, including the governance arrangements, can be found at: http://www.kpmg.com/Global/en/about/ international-annual-review/Pages/default.aspx Area Quality & Risk Management Leaders KPMG International has a network of Area Quality & Risk Management Leaders (ARLs), reporting to the Global Vice Chair–Quality, Risk Management and Regulatory. The ARLs are members of the Global Quality & Risk Management Steering Group and each ARL performs a monitoring function over a group of member firms. Their role is to enhance the KPMG network’s ability to proactively monitor quality and risk management across member firms. INTEGRATED REPORT 2013/2014 Risk management Executing our strategy and implementing actions to achieve our objectives also bear risks. Risks are a part of everyday life and in that respect we are no different. KPMG NL implemented an Enterprise Risk Management Framework to identify and mitigate its strategic risks. The identification, evaluation, management and monitoring of the most significant risks that face KPMG and could threaten the achievement of our strategic objectives are the responsibility of our Board. Mitigating actions are taken where possible in order to reduce these risks to acceptable levels. The approach to risk management, principal risks and uncertainties facing our Firm are set out below. The quality of our internal controls is periodically assessed to ensure that our mitigating measures remain effective. © 2014 KPMG N.V. All rights reserved. Risk Philosophy Our brand value is based on our credibility, quality and commerce. Erosion of our brand may adversely affect our position in the market and the trust the general public places upon our services. We face a number of significant risks and inherent complexities in our business, together with a highly regulated and commercially competitive environment. Risk Management is designed and implemented in a cost effective and efficient way, while ensuring the security of our business and the delivery and impact of our services. We engage in the delivery of professional services only if these services can be provided in such a way that it contributes to our central mission. We only engage in activities in which we are able to make an impact at our clients and for our professionals without compromising the quality and ethical standards we hold ourselves to. We train and develop our professionals to be leaders of tomorrow to ensure that they not only mitigate risks, but likewise act on potential opportunities for KPMG. We ensure that our activities are sustainable and serve and support society as a whole. 74 INTEGRATED REPORT 2013/2014 Risk Appetite Top strategic risks and related controls Tables 24 and 25 provide insight into how we approach the Firm’s risk appetite in terms of likelihood and impact, both of which are the same as last year. The following table details the risks in the top right quadrant of our risk matrix, providing context to the risk identified and the related internal controls to mitigate the risk. Classification of risk impact Non-financial Financial Quality Markets People EUR Catastrophic Extensive negative media coverage & enduring disruption of client or industry confidence Total loss of confidence, breakdown in relationships, leading to loss of majority of clients Loss of reputation as a good employer, unable to retain or hire effectively Going concern Major Extended negative national or industry wide coverage & some disruption to client confidence Loss of confidence leading to loss of major clients Dissatisfied employees, significant loss of key talent >20m Moderate Negative local coverage & short-term disruption to local client confidence Loss of confidence leading to loss of some local clients Dissatisfied employees, some loss of key talent 5-20m Minor Negative coverage barely noticeable Isolated cases of dissatisfied clients Small numbers of dissatisfied employees < 5m Table 24 / Determining risk appetite Classification of likelihood of occurrence % Probable > 50% Possible 10%-50% Unlikely 5%-10% Remote < 5% Table 25 / Determining risk likelihood © 2014 KPMG N.V. All rights reserved. 75 INTEGRATED REPORT 2013/2014 Description Potential impact REGAINING PUBLIC TRUST Failure to ensure that our behaviour including (audit) service delivery acknowledges public trust and public interest. • Reputational damage in marketplace from press publicity • Independent Supervisory Board and Public Interest resulting in loss of major clients or Committee inability to attract new talent into our Firm • true blue change programme, including Activ8 Your Audit • Regulatory sanctions Quality • License to operate in jeopardy • External members appointed to the Board of Management • Active stakeholder dialogue REGULATORY RELATIONSHIPS Failure to maintain good relationships with audit regulators or deal with any adverse findings from regulatory inspections to the regulator’s satisfaction. • Loss of major audit clients • The inability to attract new talent into our Firm • Reputational damage in marketplace from press publicity • Regulatory sanctions • We nominated specific individuals responsible for interaction with regulatory authorities and a clear framework for understanding local regulatory matters • Majority of our Board are ’Qualified Individuals’ with appropriate (audit) training and background • Relevant leadership have visibility of local regulatory findings AUDIT FAILURE Major or multiple audit failures (as a consequence of signing an incorrect audit opinion and/or poor quality auditing) resulting in litigation and/or regulatory action. • The loss of a number of audit clients due to reputational damage • The inability to attract new talent • Regulatory fines and/or temporary or permanent loss of audit licence • Litigation and claims Next to Activ8 Your Audit Quality, our audit quality controls include: • A tone from the top which emphasises quality, ethics and integrity • Our client and engagement acceptance procedures • Clear standards and robust audit methodology and tools • Controls over recruitment, development and assignment of our professionals • Commitment to technical excellence • Controls to deliver an effective and efficient audit • Commitment to continuous improvement through monitoring © 2014 KPMG N.V. All rights reserved. Mitigation 76 INTEGRATED REPORT 2013/2014 Description Potential impact Mitigation • Significant defence costs and/or settlement costs MAJOR LITIGATION / REGULATORY INVESTIGATION incurred/ regulatory sanctions Major litigation or regulatory investigation • Reputational damage and resulting regulatory scrutiny arising as a result of actual or suspected failure • Excessive use of leadership time in resolving issues of our services which we delivered either domestically, in another jurisdiction or jointly together with other firms in the KPMG network. • General engagement quality and risk management controls • Default position of engagement contracts being prepared under local law and jurisdiction • Rigorous and robust inter-firm contracting protocols when working with other KPMG member firms APPROPRIATENESS OF CLIENTS AND SERVICES Acceptance of clients that are inappropriate to our brand and/or delivery of services which are either illegal, unethical, contravene professional standards, or are otherwise perceived by investors, regulators or other stakeholders as inappropriate. • Reputation in the marketplace impacted by working for the wrong clients or delivering the wrong service • Regulatory sanctions including temporary loss of licence • Loss of major clients • Increased risk of litigation • Our internal quality control system including: • Our client and engagement acceptance procedures, including our proprietary system which checks for conflicts of interest • Detailed policies and procedures around auditor independence • Strict new products and services approval processes • Our routine compliance programmes • Our Code of Conduct and Values • Whistle-blowing hotlines in operation • Money laundering reporting procedures in place REGULATORY CHANGE Major change in regulation impacting on our business model from either the European Commission, national legislation, international or national regulators or from clients themselves in anticipation of regulatory changes. • Audit only firms undermining the multi disciplinary partnership concept • Caps for market share for audit clients • Joint audits • Mandatory rotation or retendering • Further prohibitions on auditors providing non-audit services to their audit clients • An established plan for regulatory liaison • Robust contingency planning in place for each of the potential likely regulatory outcomes • Board programme for Mandatory Firm Rotation DATA LOSS Failure to protect client confidential or personal data. • Reputational damage • Loss of clients • Potential litigation or regulatory action/fines • Robust IT security policies and processes • ISO 27001 accreditation • Ongoing training and awareness campaigns © 2014 KPMG N.V. All rights reserved. 77 INTEGRATED REPORT 2013/2014 Description Potential impact Mitigation • Failure to quickly and fully exploit growth opportunities REACTING TO NEW TRENDS Inability to quickly and effectively match key resulting in loss of revenue skills to growth areas due to organisational • Failure to match resource to demand could result barriers; skills shortages; slowness in in an excessive cost base in areas of reducing demand identifying/recruiting appropriate skills; or a lack • Failure to develop future leaders with the right of staff mobility and/or flexibility. experience and international mind set • Quality implications of having the wrong people deliver services • • • • • Monitoring of resource levels and functional hot spots Partner career paths and development Partner succession planning Global mobility programme in place Engagement acceptance processes consider skills and competencies of the team • Partner in Charge for Innovation and Innovation Council PEOPLE ENGAGEMENT Reduced morale potentially caused by high workloads impacting work life balance; poor internal communications; uncertainty around career development; and reward packages being perceived as uncompetitive. • Demotivated staff leading to service delivery issues and a reduction in quality • Lower productivity • Loss of key talent • Loss of reputation in marketplace as an ‘employer of choice’ • Less adherence to our Values & Code of Conduct • • • • TALENT MANAGEMENT Inability to recruit and retain sufficiently qualified, motivated and experienced people or to build lead partner capability. • Loss of talent leading to service delivery issues and a reduction in quality • Loss of reputation in marketplace with clients • Succession planning fails • Loss of opportunities for multi-disciplinary engagement revenue • Special training programme in place focusing on leaders of the future • Annual promotion process and pay review • Defined partner career paths and development framework • Partner succession planning Table 26 / Strategic risks and responses. Financial risks The financial risks, such as credit risk and liquidity risk are disclosed in the financial statements notes section 24. © 2014 KPMG N.V. All rights reserved. 78 true blue change programme An embedded group of People Management Leaders Sophisticated appraisal and reward processes Ongoing review of global performance management and development programmes • Ongoing initiatives to address feedback from people surveys INTEGRATED REPORT 2013/2014 10 © 2014 KPMG N.V. All rights reserved. Report from the Supervisory Board 79 INTEGRATED REPORT 2013/2014 Governance In May 2014 external advisors to the Board of Management and Supervisory Board were appointed to review the governance structure of KPMG N.V. This review evolved into an improvement and change programme, ultimately called true blue, that not only focused on governance but also on culture, remuneration, audit quality, business model and regaining public trust in the accountancy profession in general and in KPMG specifically. The agenda of the Supervisory Board has this year been challenging, resulting in a high number of 17 meetings (2012/13: 8). Attendance at all meetings was high with no Board member being regularly absent. In December 2013, we reached a settlement with the Public Prosecutor’s Office in a case related to our conduct as auditors of Ballast Nedam in respect of payments the company had made to foreign agents in connection with its projects. Ballast Nedam had itself reached a settlement with the PPO in respect of those payments approximately a year earlier. The Supervisory Board performed its oversight role through regular update meetings with the Board of Management and direct contact with external legal counsel. The Supervisory Board was involved in the development of a remedial programme and is monitoring the implementation of the proposed measures. The programme clearly identified the positive effects of bringing an external perspective to both the Board of Management as well as the Supervisory Board. This was already effected by appointing an external Chairman of the Board of Management, Jan Hommen, a Chief Operating Officer from the KPMG network and appointing an external Chief Human Resources Officer and an external Chief Financial Officer. The Supervisory Board believes that with these new appointments the Board of Management is well positioned to meet the challenges in the coming years. In February 2014 the public prosecutor’s office informed KPMG about an investigation into potential unlawful acts in connection with the development of the current office building of KPMG in Amstelveen. The Board of Management responded immediately and ordered an investigation by an external law firm. The Supervisory Board was involved in the scoping of the engagement. The Supervisory Board was updated by management and the external law firm on a regular basis. Furthermore the Chairman of the Supervisory Board took an active role in liaising between the Supervisory Board and members of the Board of Management. The governance has been adapted to give the Supervisory Board a more independent role. This independent role is achieved by a mandate similar to a Supervisory Board at a large Dutch corporate (structuurvennootschap) and the current Supervisory Board expects to be able to appoint new members to the Supervisory Board with relevant experience and a diverse background in the near future. In May 2014 media attention focused on the investment in a real estate project initiated in 2007 by a group of KPMG partners. The Supervisory Board requested KPMG International to conduct an independent investigation. The investigation was performed by an external law firm and has been finalised. © 2014 KPMG N.V. All rights reserved. 80 INTEGRATED REPORT 2013/2014 Other activities of the Board Financial statements and discharge The Supervisory Board reviewed and discussed a number of regular items during the year, amongst other attention was given to the developments of the results and the impact that the ongoing media attention could have on staff. The Supervisory Board hereby submits to the shareholders for approval the 2013/2014 Annual Report which has been prepared by the Board of Management and which comprises the Annual Report of the Board of Management and the 2013/2014 Financial Statements. The Financial Statements have been audited by the external auditor Grant Thornton. Their findings have been discussed with the Supervisory Board in the presence of the Board of Management. The auditors have expressed an unqualified opinion on the Financial Statements, which can be found on the last page of this Annual Report. We have reviewed the Financial Statements and recommended that the Annual General Meeting of Shareholders (AGM) on 2 December 2014 adopts them. We also proposed that the AGM, in accordance with Article 20 of the Articles of Association, discharges the members of the Board of Management from management as carried out in the past financial year and the members of the Supervisory Board for its supervision. In September 2014 the AFM reported on their inspection into the quality of selected files from the Big 4 in The Netherlands. We appreciate the results had an additional negative impact on the already low public trust in the Big 4 and the audit industry at large. The Supervisory Board will closely monitor the execution of the quality improvements plans already in place. © 2014 KPMG N.V. All rights reserved. 81 INTEGRATED REPORT 2013/2014 To conclude The reporting year has been very challenging, not only for KPMG as an organization but the ongoing attention from media and the political environment put a strain on management and staff. The Supervisory Board recognises that it affected not only the professional lives of our colleagues but also their personal lives. The Supervisory Board has been impressed with the commitment of management, partners and staff to bring the organization, in spite of the challenging times, back to the forefront of the industry. We feel supported by our clients, who still recognize us as a leading professional firm and confirmed this by awarding us our fair share of the new engagements in direct competition with other leading firms, both for audit as well as advisory services. We thank all our partners and staff for the energy and commitment they showed in delivering quality work to our clients. Erik Weusten Onno Sloterdijk Erik Weusten is the Chairman of the Supervisory Board of KPMG N.V. Mr. Weusten joined KPMG in 1986 and made partner in 1996. He is active as external auditor on some of our largest corporate clients, including AkzoNobel (until 2013), Philips and FrieslandCampina. Onno Sloterdijk joined KPMG in 1992 and made partner in 2000. He is the current Head of Private Equity within KPMG Corporate Finance and is also a member of the Global Private Equity Steering Committee of KPMG. Mr. Sloterdijk has won the award for best M&A advisor for mid markets three consecutive years in 2007-2009 and again in 2012. (1963, Male, Dutch nationality) Dina Aleman (1960, Female, Dutch nationality) Dina Aleman is Advisory partner for the financial services sector. She joined KPMG in 1995 and made partner in 2001. In addition to her roles and responsibilities within KPMG, Mrs. Aleman is also the Chair of Oogfonds, a non-profit organisation aiming to prevent blindness and sight impairment in the Netherlands. Amstelveen, 25 November 2014 Supervisory Board: E.H.W. Weusten (chairman) D.E.M. Aleman M.O. Sloterdijk R.R.J. Smeets © 2014 KPMG N.V. All rights reserved. 82 (1964, Male, Dutch nationality) Roland Smeets (1968, Male, Dutch nationality) Roland Smeets joined KPMG in 1991 and made partner in 2001. He is active as external auditor within KPMG’s National Practice. In addition, Mr. Smeets is also a Board member of the Cooperative KPMG U.A.. INTEGRATED REPORT 2013/2014 11 Appendices © 2014 KPMG N.V. All rights reserved. 83 INTEGRATED REPORT 2013/2014 Public Interest Entities KPMG Accountants N.V. has signed an audit opinion in the year ended 30 September 2014 for the following public interest entities (in accordance with the Wta: ‘organisaties van openbaar belang’). ABN AMRO Bank N.V. Anadolubank Nederland N.V. Banque Artesia Nederland N.V. Chapei 2007 B.V. ABN AMRO Captive N.V. Ansvar Verzekeringsmaatschappij N.V. BASF Finance Europe N.V. Chapel 2003-1 B.V. Access Finance B.V. ARCADIS N.V. BE Semiconductor Industries N.V. Colonnade Securities B.V. Adidas International Finance B.V. Ares European CLO III B.V. Beluga Master Issuer B.V. Contego CLO I B.V. Afinance B.V. ASN Beleggingsfondsen N.V. BNP Paribas OBAM N.V. Conti-Gummi Finance B.V. Ageas Finance N.V. ASR Aanvullende Ziektekostenverzekeringen N.V. Boats Investments (Netherlands) B.V. Corsair (Netherlands) B.V. Cable and Wireless International Finance B.V. Credit Europe Bank N.V. ASR Bank N.V. ASR Basis Ziektekostenverzekeringen N.V. Cadogan Square CLO B.V. ASR Levensverzekering N.V. Cadogan Square CLO II B.V. ASR Nederland N.V. Cadogan Square CLO III B.V. ASR Schadeverzekering N.V. Cadogan Square CLO IV B.V. Asset Repackaging Trust Five B.V. Cairn CLO I B.V. Asset Repackaging Trust SIX B.V. Cairn CLO II B.V. Avoca CLO II B.V. Cairn CLO III Axent Nabestaandenzorg N.V. Caja Vital Finance B.V. Air Berlin Finance B.V. Airbus Group Finance B.V. Akzo Nobel N.V. Allianz Finance II B.V. Allianz Finance III B.V. Allianz Holland Paraplufonds N.V. Allianz Nederland Asset Management B.V. Allianz Nederland Levensverzekering N.V. Allianz Risk Transfer N.V. Amsterdam Trade Bank N.V. © 2014 KPMG N.V. All rights reserved. 84 Credit Life International N.V. Creditor B.V. Cryo-Save Group N.V. Daimler International Finance B.V. Dalradian European CLO I B.V. Dalradian European CLO II B.V. Dalradian European CLO III B.V. Dalradian European CLO IV B.V. De Eendragt Pensioen N.V. INTEGRATED REPORT 2013/2014 DECO 14 - Pan Europe 5 B.V. FEET Egi B.V. HDI-Gerling Verzekeringen N.V. Jubilee CDO I-R B.V. Deutsche Bank Nederland N.V. Finance & Credit Ukraine B.V. Heijmans N.V. Jubilee CDO II B.V. DOCdata N.V. Fishbowl Master Issuer B.V. Heineken Holding N.V. Jubilee CDO III B.V. Dolphin Master Issuer B.V. Fornax (Eclipse 2006-2) B.V. Heineken N.V. Jubilee CDO IV B.V. Dryden 32 Euro CLO 2014 B.V. Fugro N.V. Hof Hoorneman Bankiers N.V. Jubilee CDO IX B.V. Duchess IV CLO B.V. Fugu CLO B.V. Holland Homes MBS 2000-1 B.V. Jubilee CDO V B.V. Duchess V CLO B.V. GarantiBank International N.V. Holland Homes MBS 2003-1 B.V. Jubilee CDO VI B.V. Duchess VI CLO B.V. Global Re N.V. Holland Homes Oranje MBS B.V. Jubilee CDO VII B.V. Duchess VII CLO B.V. Goldfish Master Issuer B.V. Jubilee CDO VIII B.V. E-MAC DE 2009-I B.V. Green Park CDO B.V. Holland Mortgage Backed Series (Hermes) X B.V. EDP Finance B.V. Gresham Capital CLO I B.V. EnBW International Finance B.V. Gresham Capital CLO II B.V. ENO Aanvullende Verzekeringen N.V. Gresham Capital CLO III B.V. ENO Zorgverzekeraar N.V. Gresham Capital CLO IV B.V. Eolo Investments B.V. Gresham Capital CLO V B.V. European Aeronautic Defence and Space Company EADS N.V. Groothandelsgebouwen N.V. Holland Mortgage Backed Series (Hermes) XVIII B.V. Grosvenor Place CLO I B.V. Home Credit B.V. Lowland Mortgage Backed Securities 2 B.V. Grosvenor Place CLO II B.V. Hyde Park CDO B.V. LSP Life Sciences Fund N.V. Grosvenor Place CLO II B.V. IMCD N.V. LUKOIL International Finance B.V. Grosvenor Place CLO III B.V. Imtech N.V. Lusitano Leverage Finance No. 1 B.V. Hamlet I Leveraged Loan Fund B.V. Jubii Europe N.V. Madrileña Red de Gas Finance B.V. European Mortgage Securities VIII B.V. Europeesche Verzekering Maatschappij N.V. Exact Holding N.V. Exfin Capital B.V. © 2014 KPMG N.V. All rights reserved. Holland Mortgage Backed Series (Hermes) XI B.V. Holland Mortgage Backed Series (Hermes) XII B.V. Holland Mortgage Backed Series (Hermes) XV B.V. 85 Kendrion N.V. Koninklijke Boskalis Westminster N.V. Koninklijke Philips Electronics N.V. Koninklijke Ten Cate N.V. Leoforos B.V. Linde Finance B.V. Lowland Mortgage Backed Securities 1 B.V. INTEGRATED REPORT 2013/2014 Malin CLO B.V. OCI N.V. PGGM Levensverzekeringen N.V. Stichting Holland Homes III MEI- Tsjechië en Slowakije Fonds N.V. Onderlinge LevensverzekeringMaatschappij Propertize B.V. Stichting Holland Homes Oranje II Prospero CLO I B.V. Syngenta Finance N.V. Prospero CLO II B.V. ThinkCapital ETF''s N.V. Monastery 2004-I B.V. Monastery 2006-I B.V. Monte 2008-I B.V. N.V. Amersfoortse Algemene Verzekering Maatschappij N.V. Bank voor de Bouwnijverheid N.V. Interpolis Kredietverzekeringen N.V. Luchthaven Schiphol N.V. Nationale Borg-Maatschappij N.V. Nederlandsche Apparatenfabriek Nedap Nationale Onderlinge Waarborgmaatschappij tegen Brandschade Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. Nederlandse Waterschapsbank N.V. NedSense Enterprises N.V. Nieuwe Steen Investments N.V. Nutreco Assurantie N.V. Nutreco Holding N.V. Oceanarium Master Issuer B.V. © 2014 KPMG N.V. All rights reserved. Onderlinge Verzekering Maatschappij Donatus U.A. Onderlinge Verzekering Maatschappij Univé Proteq Levensverzekeringen N.V. "Het Zuiden" U.A. REAAL Schadeverzekeringen N.V. Onderlinge Verzekering Maatschappij Univé Regent's Park CDO B.V. Hollands RiMaXX International N.V. Onderlinge Verzekering Maatschappij Univé Noord-Nederland Robein Leven N.V. Onderlinge Waarborgmaatschappij AZVZ U.A. ONVZ Aanvullende Verzekering N.V. ONVZ Ziektekostenverzekeraar N.V. Ovostar Union N.V. Palmer Capital Emerging Europe Equity Fund N.V. Palmer Capital Emerging Europe Property Fund N.V. Palmer Capital Russian Midcap Fund N.V. Pangaea ABS 2007-1 B.V. PEARL Mortgage Backed Securities 1 B.V. PEARL Mortgage Backed Securities 2 B.V. Triodos Bank N.V. Triodos Cultuurfonds N.V. Triodos Groenfonds N.V. Triodos Vastgoedfonds N.V. TVM Particulier N.V. Roche Finance Europe B.V. TVM Zakelijk N.V. Rockall CLO B.V. Unilever N.V. Roeminck Insurance N.V. Univé Oost Brandverzekeraar N.V. Rothschilds Continuation Finance B.V. Univé Regio+ Brandverzekering N.V. SBM Offshore N.V. Verenigde Assurantiebedrijven Nederland N.V. SMILE Securitisation Company 2007 B.V. SNS Bank N.V. SNS Beleggingsfondsen N.V. SNS REAAL N.V. SPP Infrastructure Financing B.V. SRLEV N.V. St. James's Park CDO B.V. Wolters Kluwer N.V. Wood Street CLO I B.V. Wood Street CLO II B.V. Wood Street CLO III B.V. Wood Street CLO IV B.V. Wood Street CLO V B.V. Wood Street CLO VI B.V. PEARL Mortgage Backed Securities 4 B.V. 86 INTEGRATED REPORT 2013/2014 Summary of our system of quality controls This summary provides an overview of our system of quality controls and is therefore not necessarily the entire system as operating within the firm. Commitment to continuous improvement Performance of effective and engagements Association with the right clients Tone from the top Commitment to technical excellence and quality service delivery Clear standards and robust tools Recruitment, development and assignment of appropriately qualified personnel Figure 14 / Our system of quality controls © 2014 KPMG N.V. All rights reserved. Tone at the top For us, strong leadership or tone at the top means that our leadership clearly demonstrates and communicates its commitment to clients, stakeholders, and society at large. That commitment primarily consists of quality, ethics and integrity. That is why Purpose & Values sit at the core of our value creation and helps ensure that the right behaviours permeate across our entire firm. Our explicitly codified Values are embedded into our working practices. For example, they are reflected in the performance appraisal process that our people follow and adherence to these Values is also reviewed when our people are considered for promotions to more senior positions, including partner. Our Code of Conduct defines the standards of ethical conduct that we require from our firms and our people. It sets out KPMG’s ethical principles, and helps partners and employees to understand and uphold those principles. 87 In addition, it emphasises that each partner and employee is personally responsible for following the legal, professional, and ethical standards that apply to his or her job function and level of responsibility. It has provisions that require KPMG people to: • Comply with all applicable laws, regulations and KPMG policies; • Report any illegal acts, whether committed by KPMG personnel, clients or other third parties; • Report breaches of risk management policies by KPMG firms or people; • Uphold the highest levels of client confidentiality; • Not offer, promise, make, solicit or accept bribes (whether directly or through an intermediary). INTEGRATED REPORT 2013/2014 The Board has particularly made it an objective to ensure public trust and public interest is part of our internal processes. Not only will we install a fully independent Supervisory Board, but we have also appointed three external members to the Board. In doing so, we will open up to external peer pressure and input. In addition, the Board has personally committed itself to driving the fundamental principles of professionalism, integrity, objectivity, technical excellence and confidentiality throughout the organisation using the cascading of key performance indicators linked to the strategic objectives and value chain. As Board we also drive and protect our corporate values and will not shunt away from acting on any non-compliances or value behaviour that is under par. Furthermore, the Board made it a personal target to have active and regular stakeholder dialogue to ensure stakeholder expectations and the public’s trust and interest in auditor’s reports are front and centre stage in its decision making process. This of course applies also to our Advisory engagements, where focus on maintaining high quality services is key as well. All actions in our true blue change programme are ultimately geared towards regaining public trust. © 2014 KPMG N.V. All rights reserved. Association with the right clients Prospective client and engagement evaluation process Before accepting a client, we undertake an evaluation of the prospective client. This involves an assessment of its principles, its business, and other service-related matters. This also involves background checks on the prospective client, its key management and beneficial owners. A key focus is on the integrity of management at a prospective client. A second partner, as well as the evaluating partner, approves the prospective client evaluation. Where the client is considered to be ‘high risk’ a quality and risk management partner is involved in approving the evaluation. Each prospective engagement is also evaluated; in practice this may be completed at the same time as the client evaluation, particularly in respect of audit appointments. The engagement partner evaluates a prospective engagement in consultation with other senior personnel and quality and risk management leadership as required. A range of factors is considered as part of this evaluation, including potential independence and conflict of interest issues 88 (including use of SentinelTM, our worldwide online tool for accepting engagements), as well as a range of factors specific to the type of engagement, including for audit services, the competence of the client’s financial management team. In addition, when taking on a statutory (legal) audit for the first time, the prospective engagement team is required to perform additional independence evaluation procedures including a review of any non-audit services provided to the client and of other relevant relationships. Depending on the overall risk assessment of the prospective client and engagement, additional safeguards may be introduced to help mitigate the identified risks. Any potential independence or conflict of interest issues are documented and resolved prior to acceptance. We will decline a prospective client or engagement if a potential independence or conflict issue cannot be resolved satisfactorily in accordance with professional and firm standards, or there are other quality and risk issues that cannot be appropriately mitigated. INTEGRATED REPORT 2013/2014 Continuance process We undertake an annual re-evaluation of all clients. In addition, clients are re-evaluated earlier if there is an indication that there may be a change in their risk profile. Recurring or longrunning engagements are also subject to reevaluation. This re-evaluation serves two purposes. Firstly, we will decline to act for any client who is unable to deliver to our expected level of quality or if we consider that it would not be appropriate to continue to be associated with the client. Secondly, and more commonly, our firms use the re-evaluation process to consider whether or not any additional risk management or quality control procedures need to be put in place for the next engagement (this may include the assignment of additional professionals or the need to involve additional specialists on the audit). © 2014 KPMG N.V. All rights reserved. Clear standards and robust tools All of our professionals are expected to adhere to KPMG policies and procedures (including independence policies) that we set. We provide a range of tools to support them in meeting these expectations. The policies and procedures set for the Audit function also incorporate the relevant requirements of accounting, auditing, ethics, and quality control standards, and other relevant laws and regulations. Personal independence We provide all relevant personnel (including all partners and client service professionals) with annual independence training appropriate to their grade and function and provide all new personnel with relevant training when they join. All personnel are required to sign an independence confirmation upon joining one of our operating firms. Thereafter, professionals are required to provide an annual confirmation that they have remained in compliance with applicable ethics and independence policies throughout the period. This confirmation is used 89 to evidence the individual’s compliance with and understanding of the operating firm’s independence policies. KPMG International policy extends the IESBA Code of Ethics restrictions on ownership of audit client securities to every member firm partner in respect of any audit client of any member firm. Our professionals are responsible for making appropriate enquiries to ensure that they do not have any personal financial interests that are restricted for independence purposes. In common with other member firms of KPMG International, we use a web-based independence tracking system (KICS) to assist our professionals in their compliance with personal independence investment policies. This system contains an inventory of publicly available investment products (including the Publicly Held Audit Clients List, or PHAC list). Partners and clientfacing managers are required to use this system prior to entering into an investment to identify whether they are able to do so. They are also required to maintain a record of all of their investments in the system, which automatically notifies them if their investments subsequently become restricted. INTEGRATED REPORT 2013/2014 Firm independence Audit partner rotation Audit partners are subject to periodic rotation of their responsibilities for audit clients under applicable laws and regulations and independence rules. These limit the number of years that partners in certain roles may provide audit services to an audit client. Our policies are consistent with the IESBA Code of Ethics and also require us to comply with any stricter applicable rotation requirements. The rotation monitoring is subject to compliance testing. Non-audit services and conflicts of interest KPMG policies, consistent with IESBA principles and applicable laws and regulations, require the lead audit engagement partner to evaluate the threats arising from the provision of non-audit services and the safeguards available to address those threats. KPMG International’s proprietary system, SentinelTM, facilitates compliance with these policies. Lead audit engagement partners are required to maintain group structures for their publicly traded and certain other audit clients and their affiliates in the system. Every engagement entered into by any KPMG member firm in our network is required to be included in the system prior to starting work. The system then enables © 2014 KPMG N.V. All rights reserved. lead audit engagement partners for restricted entities to review and approve, or deny, any proposed service wherever in the world the service is proposed to be provided and wherever the member firm is based. SentinelTM system is also used to identify and manage potential conflicts of interest within and across member firms. Any potential conflict issues identified are resolved in consultation with other parties as applicable, and the resolution of all matters is documented. An escalation procedure exists in the case of dispute between member firms. If a potential conflict issue cannot be resolved, the engagement is declined or terminated. It may be necessary to apply specific procedures to manage the potential for a conflict of interest to arise or be perceived to arise so that the confidentiality of all clients’ affairs is maintained. Such procedures may, for example, include establishing formal dividers between engagement teams serving different clients and making arrangements to monitor the operation of such dividers. 90 Business relationships/suppliers We have policies and procedures in place that are designed to ensure that business relationships are maintained in accordance with the IESBA Code of Ethics and any additional applicable independence requirements. Compliance with these policies and procedures is reviewed periodically. Our Supplier Code of Conduct also contains Corporate Social Responsibility (CSR) and Diversity objectives and we require our suppliers to adopt our Supplier Code. As one of the industry leaders, we fully support the development of CSR in our supply chain. We are profoundly convinced that issues such as child labour, forced labour, slavery, discrimination, inequality, corruption and bribery, large-scale devastation of our natural habitats as well as other forms of ethical wrongdoing no longer should prevail in the 21st century. In this respect, we enhanced the KPMG CSR Supplier Code to support our ambitions to take our responsibility in our secondary supply chain a step further. Audit methodology and tools Significant resources are dedicated to keeping our standards and tools complete and up to date. Our global audit methodology, developed by the INTEGRATED REPORT 2013/2014 Global Service Centre (GSC), is based on the requirements of International Standards on Auditing (ISAs). The methodology is set out in the KPMG Audit Manual (KAM) and includes additional requirements that go beyond the ISAs where KPMG believes these enhance the quality of our audits. KPMG Europe LLP’s operating firms may also add local requirements and/or guidance in KAM to comply with additional professional, legal or regulatory requirements. Our audit methodology is supported by eAudIT, KPMG’s electronic audit tool, which provides KPMG auditors worldwide with the methodology, guidance, and industry knowledge needed to perform efficient, high-quality audits. eAudIT has been deployed to all audit professionals. eAudIT’s activity-based workflow provides engagement teams with ready access to relevant information at the right time throughout the audit, thereby enhancing effectiveness and efficiency and delivering value to our audit clients. KAM contains, among other things, procedures intended to identify and assess the risk of material misstatement and procedures to respond to those assessed risks. © 2014 KPMG N.V. All rights reserved. Our methodology encourages engagement teams to exercise professional scepticism in all aspects of planning and performing an audit. The methodology encourages the use of specialists when appropriate and also requires the use of certain specialists in the core audit engagement team when certain criteria are met. Advisory methodologies and tools The materials included in our Advisory Services Directory are developed and updated, in response to specific needs articulated by Advisory leadership. Importantly, development is both a field-driven and collaborative process. It brings together representatives of member firms with KPMG’s Global Services Centre to produce globally-available resources that address client needs. The toolkits library contains methods, tools and knowledge resources that have been developed to support Advisory professionals as they deliver services and build client relationships in today’s challenging business environment. The Advisory Services Directory features the most current information regarding approved global offerings that are available, or are currently under development, to help address our client’s business needs. 91 Methodologies and tools are available for multiple service lines and engagement types. Assignment We have procedures in place to assign both the engagement partners and professionals to a specific engagement by evaluating their individual skill set, relevant professional and industry experience, and the nature of the assignment or engagement. The function heads are responsible for the process of allocating particular engagement partners to clients. Engagement partners are required to be satisfied that their engagement teams have appropriate competencies and capabilities, including time, to perform audit engagements in accordance with KAM, professional standards and applicable legal and regulatory requirements. This may include involving KPMG’s local and global specialists. When considering the appropriate competence and capabilities expected of the engagement team as a whole, the engagement partner’s considerations may include the following: INTEGRATED REPORT 2013/2014 • An understanding of, and practical experience with, engagements of a similar nature and complexity through appropriate training and participation; • An understanding of professional standards and legal and regulatory requirements; • Appropriate technical skills, including those related to relevant information technology and specialised areas of accounting or auditing; • Knowledge of relevant industries in which the client operates; • Ability to apply professional judgement; • An understanding of KPMG’s quality control policies and procedures. Client confidentiality, information security and data privacy We are committed to providing a secure and safe environment for the personal data and confidential information we hold, as well as protecting the privacy of our clients, service providers and our third parties. © 2014 KPMG N.V. All rights reserved. The importance of maintaining client confidentiality is emphasised through a variety of mechanisms including through regular communication on the topic, the Code of Conduct, training and the annual affidavit/confirmation process, which all of our professionals are required to complete. Everyone has role to play in protecting client and confidential information. Policies and practices are communicated to all personnel and, as appropriate, reinforced through guidance, awareness and training. We published an Acceptable Use Policy that applies to all KPMG personnel. This policy encourages effective and appropriate use of KPMG information technology resources, and highlights the protection requirements of all employee, KPMG, and client confidential and personal information. Data privacy policies are also in place governing the handling of personal information. In addition, we have a formal document retention policy concerning the retention period for audit documentation and other records relevant to an engagement in accordance with the relevant IESBA requirements as well as other applicable 92 laws, standards and regulations. As part of KPMG International requirements, we have appointed a National IT Security Officer (NITSO), with the necessary authority, skills and experience, to lead the information security function. The NITSO is in charge of the operating firm’s information security programme and works closely with the local IT services and Quality and Risk Management Group (QRMG). The National IT Security Officer (NITSO) also reports to the operating firm’s Senior Management and to the Global IT Security Officer and Global Head of Information Protection. We have an incident response procedure to minimise the impact of a security breach or data loss. INTEGRATED REPORT 2013/2014 Recruitment, development and assignment of appropriately qualified personnel We are totally committed to equipping our people with the skills and tools they need to cut through the complexity of today’s world – complexity that sees our people increasingly working across borders, collaborating on a global basis and taking on challenging and innovative projects. Recruitment All candidates applying for professional positions are required to submit an application and are employed following a variety of selection processes, which may include application screening, competency-based interviews, psychometric and ability testing, and qualification/reference checks. Upon joining our firm, new personnel are required to participate in a comprehensive onboarding programme, which includes training in areas such as ethics and independence, quality and risk management principles and our people management procedures. Our on-boarding programme also includes ensuring that any © 2014 KPMG N.V. All rights reserved. issues of independence or conflicts of interest are addressed before the individual’s employment or partnership commences. Personal development It is important that all professionals have the necessary business and leadership skills to be able to perform quality work in addition to technical skills. A partner development framework is in place that links particular training programmes to various partner levels and roles. Partners are encouraged to make use of these development opportunities, and also to contribute to the development of other partners and staff through coaching, mentoring, and teaching on our core programmes. In relation to audit we provide opportunities for professionals to develop the skills, behaviours and personal qualities that form the foundations of a successful career in auditing. Courses are available to enhance personal effectiveness and develop technical, leadership and business skills. We further develop our personnel for high performance through coaching and mentoring on 93 the job, stretch assignments, country rotational and global mobility opportunities and the like. Performance evaluation and compensation For some time now, the ‘glue’ that binds all of our people processes and policies together for our employees has been our Core Values. We use these to shape their performance management process, to underpin the learning and development offering and also the promotion processes. All professionals undergo annual goal-setting and performance reviews. Each professional is evaluated on attainment of agreed-upon goals, demonstration of the KPMG global behaviours for their level, and adherence to the KPMG values and attributes. This is achieved through our global performance management process, which is supported by a web-based application. These evaluations are conducted by performance managers and partners who are in a position to assess the professionals’ performance. In preparation for their counselling, all of our people are required to seek evidence of their performance during the year. As part of the year-end counselling process they are awarded a INTEGRATED REPORT 2013/2014 grading based on how well they have performed in meeting their objectives. This grade directly influences the total amount of remuneration that they are paid. The results of the annual counselling are also considered when promotion decisions are being made. risk of each audit and then to consider whether or not, taken as a whole, the specific engagement leader has the appropriate time, suitable experience and the right level of support to enable them to perform a high-quality audit for each client in their portfolio. All engagement leaders within our firm are issued with standardised quality and risk metrics which are fed into their annual counselling process. The quality and risk metrics include a number of parameters, such as the results of external regulatory reviews, timely completion of training, and the outcome of internal monitoring programmes. As part of these metrics, an overall grading is awarded. We refer to chapter 7 for further details on partner remuneration. Compensation and promotion We have compensation and promotion policies that are clear, simple, and linked to the performance evaluation process so that our people know what is expected of them and what they can expect to receive in return. Our compensation policies do not permit audit partners to be compensated for the sale of non-audit services to their audit clients. As an additional control in Audit (where the services are of more of a recurring nature than across much of the rest of our business), each national Head of Audit together with the national Audit Quality & Risk partner performs an annual review of the portfolio of all of our Audit engagement leaders. The purpose of this portfolio review is to look at the complexity and © 2014 KPMG N.V. All rights reserved. A common senior grading model and career path framework has been implemented for all partners across our Firm. This outlines the various roles a partner may undertake throughout his/her career, the level of seniority associated with the roles and the potential career routes a partner may take to achieve the roles/level of seniority. Expectations of each role are described through a role profile. 94 Commitment to technical excellence and quality service delivery We provide all professionals with the technical training and support they need, including access to networks of specialists, the Department of Professional Practice (DPP) and the Quality & Risk Management Group (QRMG) or equivalent which are made up of senior professionals with extensive experience in audit, reporting and risk management, either to provide resources to the engagement team or for consultation. At the same time, we use accreditation and licensing policies to require professionals to have the appropriate knowledge and experience for their assigned engagements. Our structure enables our engagement teams to apply their business understanding and industry knowledge to deliver valued insights and to maintain quality. Technical support is also available to our operating firms for work on SEC foreign registrants through the International Standards INTEGRATED REPORT 2013/2014 Group (ISG) as well as the US Capital Markets Group, based in New York or ELLP’s US Accounting and Reporting Group based in London. Commencing FY 13/14 the Dutch partner in charge of the NL US desk is a fully accredited SEC Reviewing Partner, relatively uncommon outside of the US member firm, enabling the Dutch member firm to provide full audit services to its SEC registered audit clients. The ISG works with global IFRS and ISA topic teams with geographic representation from around the world to promote consistency of interpretation of IFRS between member firms, identify emerging issues and develop global guidance on a timely basis. The ISG has a network of contacts and holds regular calls both in relation to auditing and IFRS to update country professional practice representatives. Accreditation and licensing All KPMG professionals are required to comply with applicable professional licence rules in the jurisdiction where they practice. We have accreditation requirements for many of our services (for example for US audit and accounting work, International Financial © 2014 KPMG N.V. All rights reserved. Reporting Standards, Transactions Services and Corporate Finance) which ensure that only partners and employees with the appropriate training and experience are assigned to clients and are appropriately licensed where necessary. In addition, we require that all eligible Audit and Advisory professionals are also required to maintain accreditation with their applicable professional bodies and satisfy the Continuing Professional Development requirements of such bodies (at a minimum, professionals comply with IESBA requirements). Our policies and procedures are designed to ensure that those individuals who require a licence to undertake their work are appropriately licensed. Training In addition to personal development discussed earlier, our policies require all professionals to maintain their technical competence and to comply with applicable regulatory and professional development requirements. Our technical training curriculum covers all grades of staff with a core training programme for junior staff and periodic and annual update training for qualified and experienced staff and partners. Access to specialist networks Our engagement teams have access to a network of local and global specialists in KPMG member firms. Engagement partners are responsible for ensuring that their engagement teams have the appropriate resources and skills. The need for specialists (e.g. Information Technology, Tax, Treasury, Pensions, Forensic) to be assigned to a specific audit engagement is considered as part of the audit engagement acceptance and continuance process. Training attendance and completion is monitored at country level through a Learning Management System. This allows individuals to monitor their compliance both with their ongoing Continuing Professional Development requirements and with KPMG’s mandatory training and accreditation requirements. Non-attendance at mandatory training is captured as one of the measures on the quality and risk metrics. 95 In addition to structured technical training, there is a coaching culture that encourages consultation, on-the-job training and mentoring. INTEGRATED REPORT 2013/2014 Performance of effective and efficient engagements Timely partner and manager involvement To identify and respond to the significant risks applicable to each audit, the engagement team requires an understanding of the client’s business, its financial position (particularly in Audit) and the environment in which it operates. The engagement partner is responsible for the overall quality of the engagement and therefore for the direction, supervision and performance of the engagement. The engagement partner is a key participant in planning meetings, reviews key documentation – in particular documentation relating to significant matters arising during the engagement and conclusions reached – and is responsible for all engagement deliverables. The engagement manager assists the partner in meeting these responsibilities and in the day-today liaison with the client and team. Involvement and leadership from the engagement partner early in the engagement process helps set the appropriate scope and tone © 2014 KPMG N.V. All rights reserved. for the engagement and helps the engagement team to obtain maximum benefit from the partner’s experience and skill. Timely involvement of the engagement partner at other stages of the engagement allows the engagement partner to identify and appropriately address matters significant to the engagement, including critical areas of judgement and significant risks. Critical assessment of audit evidence with emphasis on professional scepticism We consider all audit evidence obtained during the course of the audit, including consideration of contradictory or inconsistent audit evidence. The nature and extent of the audit evidence we gather is responsive to the assessed risks. We recognise that audit evidence obtained from external sources tends to be more persuasive. The analysis of the audit evidence requires each of our team members to exercise professional judgement and maintain professional scepticism to obtain sufficient appropriate audit evidence. Professional scepticism involves a questioning mind and alertness to contradictions or inconsistencies in audit evidence. Professional scepticism features prominently throughout auditing standards and receives significant focus 96 from regulators. Our Audit Quality Framework emphasises the importance of maintaining an attitude of professional scepticism throughout the audit. Professional judgement training has been embedded in our core Audit technical training programme for junior staff as well as being included in our periodic and annual update training for qualified and experienced staff and partners. Ongoing mentoring and on-the-job coaching, supervision and review We understand that skills build over time and through exposure to different experiences. To invest in the building of skills and capabilities of our professionals, without compromising on quality, we use a continuous learning environment. We support a coaching culture throughout KPMG as part of enabling personnel to achieve their full potential. Ongoing mentoring and on-the-job coaching and supervision during an engagement include: • Engagement partner participation in planning discussions; • Tracking the progress of the engagement; INTEGRATED REPORT 2013/2014 • Considering the competence and capabilities of the individual members of the engagement team, including whether they have sufficient time to carry out their work, whether they understand their instructions, and whether the work is being carried out in accordance with the planned approach to the engagement; • Helping engagement team members address any significant matters that arise during the engagement and modifying the planned approach appropriately; • Identifying matters for consultation with more experienced team members during the engagement. A key part of effective monitoring, coaching and supervision is timely review of the work performed so that significant matters are promptly identified, discussed and addressed. Appropriate involvement of the Engagement Quality Control (EQC) reviewer EQC reviewers are appointed by the Country Quality & Risk Management Partner and have appropriate experience and knowledge to perform an objective review of the decisions and © 2014 KPMG N.V. All rights reserved. judgements made by the engagement team. They are experienced KPMG professionals who are independent of the engagement team. They offer an objective review of the more critical and judgemental elements of the engagement. The engagement is completed only when the EQC reviewer is satisfied that all significant questions have been raised and that those questions have been resolved. An EQC reviewer is required to be appointed for all engagements that are graded high risk (such as the audits, including any related review(s) of interim financial information, of all listed entities, non-listed entities with high public profile, engagements that require an EQC review under applicable laws or regulations, and other (Advisory) engagements as designated by the Country Quality & Risk Management Partner. Commitment to continuous improvement Before the date of the deliverable (e.g. the auditor’s report), these individuals review: • Selected audit documentation and client communications; • The appropriateness of the financial statements and related disclosures (Audit only); • The significant judgements the engagement team made and the conclusions it reached. 97 We focus on ensuring our work continues to meet the needs of participants in the capital markets. To achieve this goal, we employ a broad range of mechanisms to monitor our performance, respond to feedback and understand our opportunities for continuous improvement. Additionally, we have processes in place to proactively identify emerging risks and to identify opportunities to improve quality and provide insights. Compliance with our system of quality controls The Compliance Officer and Compliance Office perform specific procedures on compliance related topics, which are out of scope of the operational audits. In addition, the Compliance INTEGRATED REPORT 2013/2014 Office monitors internal compliance with the system of quality controls through its issue tracker. The Compliance Officer reports findings on a quarterly basis to the policy makers for further follow up. Quality Performance Reviews (QPR) The International QPR programme is the cornerstone of our efforts to monitor engagement quality and one of our primary means of ensuring that member firms are collectively and consistently meeting both KPMG International’s requirements and applicable professional standards. The QPR programme assesses engagement level performance in the Audit, Tax, and Advisory functions and identifies opportunities to improve engagement quality. All engagement partners are generally subject to selection for review at least once in a three-year cycle. The reviews are tailored to the relevant function, performed at a member firm level, overseen by a Lead Reviewer from outside the specific operating firm being reviewed, and are monitored regionally and globally. Remedial action plans for all significant deficiencies noted are required at an engagement and operating firm level. We disseminate our findings from the QPR programme to our professionals through written communications, internal training tools, © 2014 KPMG N.V. All rights reserved. and periodic partner, manager and staff meetings. These areas are also emphasised in subsequent inspection programmes to gauge the extent of continuous improvement. Each engagement partner is selected for review at least once every three years. Engagements are graded as satisfactory or less than satisfactory(LTS) for Audit. Less than satisfactory can be further graded as performance improvement necessary or unsatisfactory. In Advisory, engagements are graded ‘Satisfactory’, or ‘Unsatisfactory’. A ‘Satisfactory’ grading requires both (i) the work performed, the evidence obtained and the documentation produced to comply with our internal policies, applicable auditing standards and legal and regulatory requirements (Audit only), and (ii) key judgements concerning significant matters in the engagement and – for Audit only – the audit opinion itself to have been appropriate. A ‘Performance Improvement Necessary’ grading is attributed where the engagement deliverable is generally supported by the work performed and – again for Audit only – the auditor’s report is appropriate. However, improvements are necessary in one or more 98 significant area including with respect to the documentation of the work performed. An ‘Unsatisfactory’ grading is attributed where the engagement was not performed in accordance with the firm’s policy and professional standards in significant areas, in particular where there are significant deficiencies in the financial statements themselves (Audit), the (audit) work paper documentation or the actual work undertaken. All partners receiving a LTS rating are subject to a review in the following year and all partners receiving an unsatisfactory rating are subject to a review of at least one other engagement in the current year. The ratings from the annual QPR are included in the annual quality & risk metrics generated for all partners. INTEGRATED REPORT 2013/2014 Risk Compliance Programme (RCP) The RCP is a member firm’s annual selfassessment programme. The objectives of the RCP are to monitor, assess, and document firm wide/cross-functional compliance with the system of quality control established through KPMG International’s quality and risk management policies and applicable legal and regulatory requirements as they relate to the delivery of professional services. The programme is overseen and monitored regionally as well as globally. Member firms are required to self-assess their overall levels of compliance as ‘Green’, ‘Amber’ or ‘Red’. A ‘Green’ grade indicates that the firm is substantially compliant with KPMG’s policies and procedures and where there are issues identified these are minor and isolated and are acted on promptly. An ‘Amber’ grade also indicates that the firm is substantially compliant with KPMG policies and procedures although there may be several instances of non-compliance with policies or procedures, however, these do not indicate serious deficiencies within the firm as a whole. A ‘Red’ grade indicates that there are serious deficiencies. © 2014 KPMG N.V. All rights reserved. Global Compliance Review (GCR) GCRs are performed by reviewers independent of the member firm led by the Global Compliance Group and are carried out once in a three-year cycle. These reviews focus on significant governance, risk management and independence and finance processes (including an assessment of the robustness of the firm’s Risk Compliance Programme). Each major review area is assigned a ‘traffic light’ rating by the GCR review team. A ‘Green’ rating indicates that policies and procedures are generally satisfactory and that the firm is substantially compliant with KPMG International’s policies and procedures. A ‘Yellow’ rating is given when the results indicate that the firm is generally compliant with KPMG International’s policies and procedures. There may be several instances of non-compliance with policies and procedures; however, these do not necessarily indicate serious deficiencies within the firm as a whole. A ‘Red’ rating indicates that a firm has serious deficiencies. 99 INTEGRATED REPORT 2013/2014 12 Financial Statements © 2014 KPMG N.V. All rights reserved. 100 INTEGRATED REPORT 2013/2014 Financial Statements 2013/2014 Table of contents © 2014 KPMG N.V. All rights reserved. Annual Report Board of Management 131 Report of the Supervisory Board 133 Consolidated statement of comprehensive income 135 Consolidated statement of financial position 136 Consolidated statement of cash flows 137 Consolidated statement of changes in equity 138 Notes to the consolidated financial statements 139 Separate statement of financial position 167 Separate statement of comprehensive income 168 Notes to the separate financial statements 169 Other information 173 101 INTEGRATED REPORT 2013/2014 Annual Report Board of Management Revenue decreased in the financial year by 1.7% to EUR 449 million. Profit before income tax increased by 6.4% to EUR 70 million. Revenues dropped 2.9% in Audit and increased slightly in Advisory by 0.7%. Personnel costs decreased by 6.6% mainly explained by a decrease in the number of FTEs of 6.3%. The decrease in FTEs was mainly caused by a decrease in FTEs in Advisory. The average number of partners and staff decreased by 206 FTEs (6.6%) to 2,925 FTEs. The number of partners decreased by 18 FTEs to 149 FTEs. The number of professional staff has decreased by 144 FTEs (6.2%) to 2,195 FTEs, while the number of support staff has dropped by 52 FTEs (9.2%) to 515 FTEs. The decrease in professional staff is due to a decrease in Audit of 3 FTEs (0.2%) and a decrease of 141 FTEs (13.1%) in Advisory. Part of this decrease is explained by more work performed by the KPMG firm KGS in India. The dedicated team for KPMG N.V. in India has grown by 40 FTEs to 135 FTEs. As of 1 November 2014 the Board of Management comprises 1 female and 6 male board members. The Board of Management is aware of the 30% diversity criterion with respect © 2014 KPMG N.V. All rights reserved. to female board members and the goal still is to meet this criterion, although this will be a longer term scenario since new board members have just started in their role. The other operating expenses increased by EUR 10.8 million (8.6%) mainly explained by the settlement of EUR 7 million with the Public Prosecution Office other settlements and the adjusted tax return 2010 regarding the development of the building in Amstelveen, and the provisions formed for vacant offices space. The profit before tax in Audit decreased by EUR 6.9 million (8.0%) and the profit before tax in Advisory increased by EUR 24.7 million (58.7%). The decrease in Audit is mainly explained by a reduction in revenues and investments in quality. The increase in profit before tax in Advisory is explained by a lower number of staff (141 FTEs) generating revenues slightly higher than previous year. Corporate costs increased due to the Ballast Nedam settlement, high legal costs and the provision for vacant office space. Income tax expense is high compared to previous year due to the provision formed as a consequence of the uncertain tax position 2010 KPMG Gebouw II B.V. the corporate vehicle for the development of the 102 building in Amstelveen. Fees paid to partners under management agreements decreased by EUR 3.3 million (5.3%). Investments in property, plant and equipment remain limited and were only made in replacement of computer and communication equipment. The investments in intangible assets relate to the acquisition of Innovation Factory B.V. (in previous year Bridging Solutions B.V. and Conquaestor B.V.). Material investments in hours have been made in innovation projects in Audit, like Dynamic Audit, and within Advisory for example in Big Data. Financing is provided by loans from partners. At the end of the year this amounted to EUR 39.5 million, an increase of EUR 0.1 million compared to previous year (EUR 39.4 million). During the past financial year, cash increased by EUR 24.7 million. This is mainly explained by higher net cash inflow from operating activities. The organisation is exposed to price, credit, liquidity and cash flow risks in the normal course of its business. As a result of the size and diversity of clients of KPMG, the price, liquidity and cash flow risk is minimal. KPMG does not make use of financial derivatives and follows FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 procedures and guidelines to limit the size of the credit risk with each counterparty and market. The cash is placed with banks which have a credit rating of rated A or higher. With regard to services still to be invoiced and receivables there were no significant concentrations of credit risk on the reporting date. For a more detailed explanation see note 24 in the financial statements. In the current economic conditions we expect a slight decline in revenue. As a result of the legislation to rotate audit firms and an analysis of our current good market share in the top segment, we expect a further decline in Audit revenues in 2015. Audit firm rotation will result in more opportunities for Advisory and we expect Advisory revenues to increase slightly. We also expect to further grow in Advisory due to further acquisitions of Advisory businesses. © 2014 KPMG N.V. All rights reserved. Due to more investments in our audit quality and change programme, we expect no growth in profitability in the coming financial year. The total number of staff in The Netherlands is expected to decline slightly as a result of the decline in revenues and a further build-up of capacity in India to assist our professionals in The Netherlands. Investments are related to possible acquisitions in Advisory and continued investments in innovation. Financing by partners is expected to remain at current levels. Board of Management under the Articles of Association: J.H.M. Hommen (chairman) A.J.A. Cranston J. van Delden B. Ferwerda R.G.A. Fijneman M.A. Hogeboom B. Lamberts The launch of our change programme “true blue” gives us confidence regarding the future and emphasises the importance to invest in the long-term success of our organisation, especially in our people and the quality of our services. Amstelveen, 25 November 2014 103 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Report of the Supervisory Board The agenda of the Supervisory Board has this year been challenging, resulting in a high number of 17 meetings (2012/13: 8). Attendance at all meetings was high with no Board member being regularly absent. In December 2013, we reached a settlement with the Public Prosecutor’s Office in a case related to our conduct as auditors of Ballast Nedam in respect of payments the company had made to foreign agents in connection with its projects. Ballast Nedam had itself reached a settlement with the PPO in respect of those payments approximately a year earlier. The Supervisory Board performed its oversight role through regular update meetings with the Board of Management and direct contact with external legal counsel. The Supervisory Board was involved in the development of a remedial programme and is monitoring the implementation of the proposed measures. In February 2014 the public prosecutor’s office informed KPMG about an investigation into potential unlawful acts in connection with the development of the current office building of KPMG in Amstelveen. © 2014 KPMG N.V. All rights reserved. The Board of Management responded immediately and ordered an investigation by an external law firm. The Supervisory Board was involved in the scoping of the engagement. The Supervisory Board was updated by management and the external law firm on a regular basis. Furthermore the Chairman of the Supervisory Board took an active role in liaising between the Supervisory Board and members of the Board of Management. In May 2014 media attention focused on the investment in a real estate project initiated in 2007 by a group of KPMG partners. The Supervisory Board requested KPMG International to conduct an independent investigation. The investigation was performed by an external law firm and has been finalised. Governance In May 2014 external advisors to the Board of Management and Supervisory Board were appointed to review the governance structure of KPMG N.V. This review evolved into an improvement and change programme, ultimately called true blue, that not only focused on governance but also on culture, remuneration, 104 audit quality, business model and regaining public trust in the accountancy profession in general and in KPMG specifically. The programme clearly identified the positive effects of bringing an external perspective to both the Board of Management as well as the Supervisory Board. This was already effected by appointing an external Chairman of the Board of Management, Jan Hommen, a Chief Operating Officer from the KPMG network and appointing an external Chief Human Resources Officer and an external Chief Financial Officer. The Supervisory Board believes that with these new appointments the Board of Management is well positioned to meet the challenges in the coming years. The governance has been adapted to give the Supervisory Board a more independent role. This independent role is achieved by a mandate similar to a Supervisory Board at a large Dutch corporate (structuurvennootschap) and the current Supervisory Board expects to be able to appoint new members to the Supervisory Board with relevant experience and a diverse background in the near future. FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Other activities of the Board The Supervisory Board reviewed and discussed a number of regular items during the year, amongst other attention was given to the developments of the results and the impact that the ongoing media attention could have on staff. In September 2014 the AFM reported on their inspection into the quality of selected files from the Big 4 in The Netherlands. We appreciate the results had an additional negative impact on the already low public trust in the Big 4 and the audit industry at large. The Supervisory Board will closely monitor the execution of the quality improvements plans already in place. Financial statements and discharge The Supervisory Board hereby submits to the shareholders for approval the 2013/2014 Annual Report which has been prepared by the Board of Management and which comprises the Annual Report of the Board of Management and the 2013/2014 Financial Statements. The Financial Statements have been audited by the external auditor Grant Thornton. Their findings have been discussed with the Supervisory Board in the presence of the Board of Management. The auditors have expressed an unqualified opinion © 2014 KPMG N.V. All rights reserved. on the Financial Statements, which can be found on the last page of this Annual Report. We have reviewed the Financial Statements and recommended that the Annual General Meeting of Shareholders (AGM) on 2 December 2014 adopts them. We also proposed that the AGM, in accordance with Article 20 of the Articles of Association, discharges the members of the Board of Management from management as carried out in the past financial year and the members of the Supervisory Board for its supervision. and confirmed this by awarding us our fair share of the new engagements in direct competition with other leading firms, both for audit as well as advisory services. We thank all our partners and staff for the energy and commitment they showed in delivering quality work to our clients. and confirming this by allowing us winning our fair share in direct competition with other leading firms, both for audit as well as advisory engagements. We thank all our partners and staff for the energy and commitment they showed in delivering quality work to our clients. To conclude The reporting year has been very challenging, not only for KPMG as an organization but the ongoing attention from media and the political environment put a strain on management and staff. The Supervisory Board recognises that it affected not only the professional lives of our colleagues but also their personal lives. The Supervisory Board has been impressed with the commitment of management, partners and staff to bring the organization, in spite of the challenging times, back to the forefront of the industry. We feel supported by our clients, who still recognize us as a leading professional firm 105 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Consolidated statement of comprehensive income For the year ended 30 September 2014 Note 2013/2014 2012/2013 (in thousands of euros) Note 2013/2014 2012/2013 Income tax expense 8 7,816 832 Fees paid to partners under management agreements 9 58,876 62,299 3,264 2,626 - - 3,264 2,626 3,264 2,626 - - 3,264 2,626 (in thousands of euros) Revenue 2 448,624 456,195 Other income 3 18,686 14,923 467,310 471,118 Total income Profit for the year Costs of outsourced work and other external charges 38,891 41,815 4 210,609 225,443 10, 11 9,636 10,078 5 136,920 126,118 396,056 403,454 71,254 67,664 280 71 -1,578 -2,067 -1,298 -1,996 Share of profit of associate - 89 Profit before income tax 69,956 65,757 Employee benefits expenses Depreciation and amortisation Other expenses Total expenses Results from operating activities Finance income Finance costs Net finance costs 6 Other comprehensive income after tax Total comprehensive income for the year Profit and total comprehensive income attributable to: Owners of the company Non-controlling interest The notes on pages 10 to 36 inclusive are an integral part of these consolidated financial statements. © 2014 KPMG N.V. All rights reserved. 106 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Consolidated statement of financial position As at 30 September 2014 Note 30 September 2014 30 September 2013 Note 30 September 2014 30 September 2013 19 3,726 4,452 Employee benefits 20 2,978 3,058 (in thousands of euros) (in thousands of euros) Assets Non-current liabilities Non-current assets Coöperatie KPMG U.A. relating to: - loans from former partners Property, plant and equipment 10 21,026 25,560 Intangible assets and goodwill 11 21,000 20,820 Receivables 12 393 - Bank loans 21 423 - Investment in securities 13 1,225 - Provisions 22 3,532 1,483 43,644 46,380 10,659 8,993 Current liabilities Current assets Coöperatie KPMG U.A. relating to: Unbilled services 14 31,935 36,239 Trade receivables 15 81,205 89,105 - loans from partners 19 39,473 39,438 Other receivables, prepayments 16 14,011 10,806 - loans from former partners 19 13,651 14,903 Cash and cash equivalents 17 27,835 3,107 - VAT liability 19 2,059 2,337 154,986 139,257 Advance billings 14 24,032 26,361 198,630 185,637 Trade and other payables 23 50,156 44,822 8,531 2,261 Total assets Income tax Equity and liabilities Equity Share capital 18 5,500 5,500 10,400 12,600 Reserves 2,360 2,360 Profit for the year 3,264 2,626 21,524 23,086 6 6 21,530 23,092 Share premium Total equity attributable to equity holders of the Company Non-controlling interest Total equity © 2014 KPMG N.V. All rights reserved. Employee benefits 20 25,948 22,849 Bank loans 21 339 - Provisions 22 2,252 581 166,441 153,552 Total liabilities 177,100 162,545 Total equity and liabilities 198,630 185,637 The notes on pages 10 to 36 inclusive are an integral part of these consolidated financial statements. 107 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Consolidated statement of cash flows For the year ended 30 September 2014 Note 2013/2014 2012/2013 Note 2013/2014 (in thousands of euros) (in thousands of euros) Profit for the year 3,264 2,626 Adjustments for: Income tax expense 8 7,816 832 Fees paid to partners under management agreements 9 58,876 62,299 Gain on sale of businesses 3 -1,712 - 10, 11 9,636 10,078 Finance income 6 -280 -71 Finance costs 6 1,578 2,067 79,178 77,831 Depreciation and amortisation 2012/2013 Cash flows before movements in working capital and provisions Acquisition of property, plant and equipment 10 -2,147 -3,228 Proceeds from sale of property, plant and equipment 10 120 1,894 Acquisition of businesses net of cash 11 27 -2,086 Investment in back office software 11 -26 -5,142 Divestment 12 1,319 - Investment in securities 13 -1,225 - 6 280 96 -1,652 -8,466 600 300 Interest received Net cash used in investing activities Addition to share premium by new partners Increase resp. decrease in financing by partners 19 35 -17,849 Decrease resp. increase in financing by former partners 19 -1,978 4,813 Payment to partners based on management contracts 11 -58,876 -62,299 6 -950 -1,598 -5,426 -7,677 -74 - -66,669 -84,310 Change in unbilled services and advance billings 14 1,975 1,950 Change in trade receivables 15 8,174 -2,345 Change in other receivables and prepayments 16 -2,178 937 Change in trade and other payables 23 1,385 4,807 Change in provisions 22 3,720 -478 Change in employee benefits 20 3,019 -3,890 Net increase (decrease) in cash and cash equivalents 17 24,728 -15,746 95,273 78,812 Cash and cash equivalents at 1 October 17 3,107 18,853 27,835 3,107 Cash flows from operating activities Interest paid to partners and former partners Dividends paid to Coöperatie KPMG U.A. Payment on bank loans Net cash from financing activities Cash and cash equivalents at 30 September Interest paid 6 -678 -419 Income tax paid 8 -1,546 -1,355 93,049 77,030 Net cash from operating activities © 2014 KPMG N.V. All rights reserved. 21 The notes on pages 10 to 36 inclusive are an integral part of these consolidated financial statements. The comparative figures have been reclassed for presentation purposes. The principles of valuation and determination of result remained unchanged compared to prior years. 108 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Consolidated statement of changes in equity Share capital Share premium Treasury shares Reserves Profit for the year Total equity attributable to equity holders Noncontrolling interest Total equity 5,500 16,500 -1,500 1,474 5,863 27,837 6 27,843 - - - 5,863 -5,863 - - - - - - - 2,626 2,626 - 2,626 Transfer - -1,500 1,500 - - - - - Dividend paid - -2,700 - -4,977 - -7,677 - -7,677 Additions - 300 - - - 300 - 300 Balance at 30 September 2013 5,500 12,600 - 2,360 2,626 23,086 6 23,092 Balance at 1 October 2013 5,500 12,600 - 2,360 2,626 23,086 6 23,092 - - - 2,626 -2,626 - - - - - - - 3,264 3,264 - 3,264 Dividend paid - -2,800 - -2,626 - -5,426 - -5,426 Additions - 600 - - - 600 - 600 5,500 10,400 - 2,360 3,264 21,524 6 21,530 (in thousands of euros) Balance at 1 October 2012 Transfer Total comprehensive income for the year Profit for 2012/2013 Transaction with owners of the Company, recognised directly in equity Transfer Total comprehensive income for the year Profit for 2013/2014 Transaction with owners of the Company, recognised directly in equity Balance at 30 September 2014 The notes on pages 10 to 36 inclusive are an integral part of these consolidated financial statements. © 2014 KPMG N.V. All rights reserved. 109 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Notes to the consolidated financial statements All amounts are in thousands of euros unless otherwise stated. 1. Accounting policies General KPMG N.V. (‘the Company’) is the holding company of companies that operate in the Audit or Advisory business segments (KPMG). On 26 September 2014 the demerger of KPMG Europe LLP has taken place and as a result the shares of KPMG N.V. were transferred to Coöperatie KPMG U.A. (‘the Cooperative’). The practice companies of the partners are no longer member of KPMG Europe LLP. Coöperatie KPMG U.A. holds the shares in KPMG N.V. The only members of the Cooperative are the practice companies of the partners. On the basis of a management agreement the services of the partners are made available to the Cooperative. The Cooperative subsequently makes the services of the partners available to KPMG N.V. or its subsidiaries. Coöperatie KPMG U.A. is the ultimate parent company of KPMG N.V. KPMG N.V. is registered with the trade register in The Netherlands and a member firm of the KPMG network of independent © 2014 KPMG N.V. All rights reserved. member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. KPMG N.V. has its registered office at Laan van Langerhuize 1-11, 1186 DS Amstelveen, The Netherlands. The Company’s consolidated financial statements for the year include the financial statements of the Company and its subsidiaries and the Company’s investments in associates. The Company’s financial year runs from 1 October to 30 September of the following calendar year. The financial statements for 2013/2014 were approved for issue by the Board of Management on 25 November 2014. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU IFRS). The consolidated financial statements have also been drawn up in accordance with Section 362(9), Book 2 of the Netherlands Civil Code. Accounting policies adopted for the preparation of consolidated financial statements 110 General The financial statements are prepared on a historical cost basis and stated in thousands of euros unless otherwise specified. The preparation of financial statements in conformity with EU IFRS requires the Board of Management to make judgements, estimates and assumptions that affect the application of policies and the reported values of assets and liabilities, income and expenses. The estimates and associated assumptions are based on past experience and various other factors considered reasonable in the circumstances. The results form the basis for the Company’s assessment of the carrying amounts of the assets and liabilities that are not readily evident from other sources. The actual results may differ from these estimates. The estimates and underlying assumptions are assessed periodically. Any revised estimates are accounted for in the period in which they are revised, if such revision only affects that period, or the period in which the revision is made and future periods, if the revision has implications for both the period under review and future periods. FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Judgements made by the Board of Management in the application of adopted EU IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 29. The accounting policies set out below have been applied consistently by all entities forming part of KPMG and have been applied consistently to all periods presented in these consolidated financial statements. New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Company. Basis of consolidation Business combinations For business combinations, fair values that reflect conditions at the date of the business combination © 2014 KPMG N.V. All rights reserved. and the terms of each business combination are attributed to the identifiable assets, liabilities and contingent liabilities acquired. Consideration is measured at the fair value of liabilities incurred by the Company to the previous owners. Goodwill is recognized where the cost of the business combination exceeds the total of the fair values off the identifiable assets, liabilities and contingent liabilities acquired. Where the excess is positive, goodwill is capitalized, subject to annual impairment testing. Where the excess is negative it is recognized immediately in the consolidated statement of comprehensive income. For the consolidation of Innovation Factory the anticipated-acquisition method is applied. Under the anticipated-acquisition method the interests of the non-controlling shareholders that hold the written put options or forwards are derecognised when the financial liability is recognised. Therefore, the underlying interests are presented as already owned by the Company, both in the statement of comprehensive income and the statement of financial position, even though legally they are still non-controlling interests. Company. Control exists when the Company has the power, directly or indirectly, to determine the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A list of significant subsidiaries is included in note 26. Transactions eliminated on consolidation Intra-group balances and any unrealised gains or losses on transactions within KPMG, or income and expenses from such transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains on transactions with equity accounted investees and jointly controlled entities are eliminated to the extent of KPMG’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Subsidiaries Subsidiaries are entities controlled by the 111 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Foreign currency Income and expenses in foreign currencies are translated at the exchange rate at the date of the transaction. Monetary assets and liabilities are translated at the exchange rate at the reporting date. Foreign exchange differences arising on translation are recognised in the statement of comprehensive income. Derivative financial instruments When derivative financial instruments are used to hedge exposure to foreign exchange risks of recognised monetary assets or liabilities, hedge accounting is not applied and a gain or loss on the hedging instrument is recognised in the statement of comprehensive income. Based on an agreement between KPMG Advisory N.V. and IF Holding B.V., IF Holding B.V. has granted a put option to KPMG to, according to agreed conditions, to sell the shares held by KPMG in Innovation Factory Intellectual Property B.V., Innovation Factory Software Services B.V. and Innovation Factory B.V. to IF Holding B.V. for one euro. Based on the same agreement KPMG will acquire 40% of the shares in the coming three years for a maximum amount of EUR 4 million. © 2014 KPMG N.V. All rights reserved. For the remaining 20% of the shares of Innovation Factory Intellectual Property B.V., Innovation Factory Software Services B.V. and Innovation Factory B.V. from IF Holding B.V., IF Holding B.V. has granted a call option to KPMG to acquire, according to agreed conditions, these shares for a maximum amount of EUR 4 million. Property, plant and equipment Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Where property, plant and equipment consist of significant parts that have different useful lives, they are accounted for as separate items under property, plant and equipment. Subsequent costs The carrying amount of an item of property, plant and equipment includes the cost of replacing part of the asset when such costs are incurred if it is probable that future economic benefits relating to the asset will accrue to KPMG and the cost of the asset can be measured reliably. All other costs are recognised as expenses in the statement of comprehensive income when they are incurred. 112 Depreciation Depreciation is recognised in the statement of comprehensive income in accordance with the straight-line method over the estimated useful life of each part of an item of property, plant and equipment. The estimated useful lives are as follows: • fittings, fixtures and alterations 5 to 10 years depending on the lease term • computers and communications equipment 5 to 8 years • office furniture and equipment 5 years The estimated useful lives and residual values are reviewed periodically. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Intangible assets and goodwill Goodwill is stated at cost less any accumulated impairment losses. Customer relationships and order books are acquired through business combinations and stated at cost less accumulated FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 amortisation and impairment losses. Back office software is stated at cost less accumulated amortisation and impairment losses. Each category is amortised over its estimated useful life for the current years, as follows: • customer relationships 5 years • order books 3 months • back office software 8 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Unbilled services This refers to services performed at cost plus profit recognised to date, less a provision for foreseeable losses, and less instalments billed in line with the state of completion. Unbilled services relate to the stage of completion of the relevant engagement at the reporting date. The stage of completion is determined by assessing the status of the work performed. For each client it is determined whether services are yet to be billed or have been billed in advance. Advance billings (prepayments) are shown under current liabilities. Profit is recognised in proportion to the service performed. Expected losses are recognised © 2014 KPMG N.V. All rights reserved. immediately in the statement of comprehensive income. Receivables Trade and other receivables are stated at amortised cost less impairment. Cash and cash equivalents Cash represents cash at bank and in hand and call deposits. Impairment Financial Assets measured at amortised cost The Company considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics. In assessing collective impairment, the Company uses historical information on the timing of 113 recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Company considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss. Non-financial assets The recoverable amount of assets is the greater of their fair value less costs of disposal and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Goodwill is tested annually for impairment. Impairment losses in respect of goodwill are not reversed. In respect of assets other than goodwill, an impairment loss is reversed when there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Share capital Ordinary shares are classified as equity. Employee benefits Pension schemes The Company has a pension plan (het.kpmg. pensioen) for all employees. This pension plan is an individual defined contribution plan and is administered by an insurance company. The above only applies to employees. Partners are expected to make their own pension arrangements. Long-term employee benefits The net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their services in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to determine its present value. The discount rate is the yield at the reporting sheet date on AA+ credit-rated corporate bonds that have maturity dates approximating to the term of the obligations. Provisions A provision is recognised in the statement of financial position when, as a result of a past event, the Company has a legal or constructive obligation that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the obligation. A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the asset associated with that contract. These employee benefits relate primarily to supplementary WAO (Occupational Disability Insurance Act) benefits and a provision for long-service benefits. © 2014 KPMG N.V. All rights reserved. 114 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Revenue Revenue from services performed is recognised in the statement of comprehensive income in proportion to the stage of completion of the relevant engagement at the reporting date. The stage of completion is determined by assessing the status of the work performed. No revenue is recognised if there is significant uncertainty regarding the collection of the fee due or the costs involved. Amounts billed to third parties for services other than audit and advisory services are classified as other income. This relates primarily to premises, IT costs and IHQ staff expenditures charged to third parties that occupy buildings belonging to the Company. Operating lease payments Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. © 2014 KPMG N.V. All rights reserved. Finance cost and income Finance cost Finance costs comprise interest payable on borrowings, calculated using the effective interest method, and foreign exchange gains and losses. Finance income Interest income is recognised as it accrues in the statement of comprehensive income using the effective interest method. Fees paid to partners under management agreements In accordance with the regulations of KPMG N.V. and the management agreements, the partners are entitled to all of the profits of KPMG N.V. The Company is obliged to distribute all earnings that constitute profits as part of fees paid to partners under the management agreements or as dividend, except for the amount the Board of Management proposes to add to the reserves. These profits are distributed to the practice companies of the partners through Coöperatie KPMG U.A. 115 Income tax It has been agreed with the Dutch Tax Authorities that the partners’ practice limited companies will be entitled to the Company’s profits and that these practice limited companies will be liable to pay tax on these profits. As a result, the amount of income tax payable by the Company itself will be limited. Consequently, there are no temporary differences in respect of which deferred tax needs to be recognised. Principles for presentation of the consolidated cash flow statement The cash flow statement is prepared according to the indirect method. The funds in the cash flow statement consist of cash and cash equivalents. Cash equivalents can be considered to be highly liquid investments. Cash flows in foreign currencies are translated at an estimated average rate. Exchange rate differences concerning finances are shown separately in the cash flow statement. FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Corporate income taxes, issuance of share capital, interest received, interest paid and dividends received are presented under the cash flow from operating activities. Dividends paid are presented under the cash flow from financing activities. 2. Segment reporting An operating segment is a component of KPMG that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of KPMG’s other components. All operating segments’ operating results are reviewed regularly by the Board of Management to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available. As the Company operates in The Netherlands, there is only one geographic segment. The pricing of intersegment transactions is determined in accordance with objective and commercial principles. There has been no change in the system in 2013/2014 relative to the previous year. Earnings, assets and liabilities of a segment include items that can be allocated to the segment directly or on a reasonable basis. KPMG has the following primary business segments: •Audit •Advisory Segment results that are reported to the Board of Management include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, and income tax assets and liabilities. © 2014 KPMG N.V. All rights reserved. 116 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Segmentation 2013-2014 Audit Advisory Corporate and reconciliations Total Revenue and profit Revenue Audit Advisory Corporate and reconciliations Total Capital expenditure - - 2,147 2,147 Depreciation - - 6,577 6,577 58,950 49,991 4,199 113,140 5,000 13,264 67,226 85,490 Property, plant and equipment 244,711 204,656 -743 448,624 584 3,232 -3,816 0 245,295 207,888 -4,559 448,624 Other income 0 1,712 16,974 18,686 Assets by segment Total income 245,295 209,600 12,415 467,310 Unbilled services and trade receivables Profit before tax 79,325 66,876 -76,245 69,956 Profit before tax/revenue (%) 32.4 32.7 Revenue from intersegment transactions Other assets 198,630 15.6 Liabilities by segment Taxation -7,816 Fees paid to partners under agreements -58,976 Prepayments Other liabilities 18,387 5,645 - 24,032 1,056 5,105 168,437 174,598 198,630 Profit (loss) for the year 3,264 FTEs Partners 85 56 8 149 Professionals 1,261 934 - 2,195 Support staff 103 59 419 581 1,449 1,049 427 2,925 Total FTEs © 2014 KPMG N.V. All rights reserved. 117 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Segmentation 2012-2013 Audit Advisory Corporate and reconciliations Total Revenue and profit Revenue Audit Advisory Corporate and reconciliations Total Capital expenditure - - 3,228 3,228 Depreciation - - 8,033 8,033 66,616 55,437 3,292 125,345 - 10,487 49,805 60,292 Property, plant and equipment 252,347 200,833 3,015 456,195 298 5,671 -5,969 0 252,645 206,504 -2,954 456,195 Other income 0 0 14,923 14,923 Assets by segment Total income 252,645 206,504 11,969 471,118 Unbilled services and trade receivables 86,222 42,148 -62,613 65,757 34.2 21.0 Revenue from intersegment transactions Profit before tax Profit before tax/revenue (%) Other assets 185,637 14.4 Taxation -832 Fees paid to partners under agreements -62,299 Profit (loss) for the year Liabilities by segment Prepayments Other liabilities 21,852 4,509 - 26,361 - 1,374 134,810 136,184 162,545 2,626 FTEs Partners 92 62 13 167 Professionals 1,264 1,075 - 2,339 Support staff 104 66 455 625 1,460 1,203 468 3,131 Total FTEs © 2014 KPMG N.V. All rights reserved. 118 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 3. Other income 2013/2014 2012/2013 Premises costs charged externally 3,908 3,989 IT services charged externally 2,890 1,617 KPMG International employee expenses charged externally 10,176 9,317 1,712 - 18,686 14,923 2013/2014 2012/2013 174,393 186,639 Social security costs 22,621 23,443 Pension costs 13,570 14,932 25 429 210,609 225,443 2013/2014 2012/2013 2,195 2,339 515 567 66 58 2,776 2,964 149 167 2,925 3,131 Gain on sale of business activities Premises costs and IT services charged externally relate primarily to KPMG Meijburg & Co and KPMG International. Employee expenses of KPMG International charged externally are the result of the commencement of employment of personnel of KPMG International at KPMG Staffing & Facility Services B.V. These costs have been rebilled in full to KPMG International. Gain on sale of business activities relates to a management buy-out of part of the advisory services regarding business process support. 4. Employee benefits expenses Salaries Long-term employee benefits Number of staff and partners The average salary per FTE increased by 1.5% (previous year: increase of 2.8%). (FTEs) Number of staff: Professional staff Support staff Support staff for KPMG International Partners © 2014 KPMG N.V. All rights reserved. 119 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 5. Other expenses 2013/2014 2012/2013 Other employee expenses 29,747 29,127 Travelling, car leases and representation expenses 31,179 33,291 Premises costs 33,483 31,777 Office and IT expenses 11,926 13,115 Other expenses 30,585 18,808 136,920 126,118 The decrease in travelling, car leases and representation expenses is explained by lower costs for car leases. Premises costs increased due to an addition of EUR 4,301 to the provision for vacant properties. Office and IT expenses decreased mainly due to lower telecommunication costs. Other expenses mainly increased due to the settlement of EUR 7 million with the Public Prosecution Office regarding payments to foreign agents by a former Audit client of KPMG and higher legal expenses. 6. Net finance costs Net finance costs 2013/2014 2012/2013 280 71 Finance income Finance costs due to partners -691 -1,390 Finance costs due to former partners -259 -208 Other finance costs -628 -469 © 2014 KPMG N.V. All rights reserved. -1,578 -2,067 -1,298 -1,996 120 The finance costs due to partners decreased due to lower loans and the reversal of an overstated accrual from previous year. FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 7. Acquisitions of businesses On 6 May 2014 the Company obtained 40% of the shares of Innovation Factory B.V., Innovation Factory Intellectual Property B.V. and Innovation Factory Software Services B.V. The activities of these three companies consist primarily in the development of software and the exploitation of these. Although the Company owns less than half of Innovation Factory Intellectual Property B.V., Innovation Factory Software Services B.V. and Innovation Factory B.V. and has less than half of their voting power, management has determined that the Company controls these three entities. The Company controls these subsidiaries by virtue of an agreement with one of its other shareholders. In the period prior to the acquisition the businesses contributed revenue of EUR 842 and gain of EUR 1 to the Company’s results. If the acquisitions had occurred on 1 October 2013, management estimates that consolidated revenue would have been EUR 449 million, and consolidated profit for the year would not have changed. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 October 2013. The acquisitions had the following effect on the group’s assets and liabilities at acquisition: Intangible assets 1,697 Trade and other receivables 1,317 Cash and cash equivalents Trade and other payables 27 -1,470 Net identifiable assets, liabilities and contingent liabilities 1,571 Goodwill on acquisition 1,516 Total consideration 3,087 Of which to be paid -3,087 Consideration paid 0 The goodwill is attributable mainly to the skills of the professionals and synergies expected to be achieved from integrating the businesses into the Company’s existing business. None of the goodwill recognised is expected to be deductible for income tax purposes. Revenue and profit after taxation of Innovation Factory for the five months ended 30 September 2014 are included within these consolidated financial statements. The following data provides pro-forma information, presented as if the Company has existed in its form at 30 September 2014 through the two years ended on that date – that is, including the acquisition of businesses. © 2014 KPMG N.V. All rights reserved. 121 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Pro-forma revenue can be analysed by function as follows: 2013/2014 2012/2013 Audit 245,295 252,645 Advisory 208,731 207,710 -4,559 -2,954 449,467 457,401 Corporate On a pro-forma basis, as if the Company has existed through the two years ended 30 September 2014, average full-time equivalent headcount in 2013/2014 would have been 2,928 (2012/2013: 3,136). 8. Income tax expense Under management agreements, all earnings of KPMG N.V. are distributed to the partners who pay tax on these earnings. As the result of a ruling by the Dutch Tax Authorities, the corporation tax payable by the Company itself is limited and determined by applying a formula. Tax on the profit share of KPMG N.V. is calculated using the average rate applicable to the year. For 2013/2014, the average rate was 24.9% (2012/2013: 24.7%). The Company’s effective tax rate was 11.2% (2012/2013: 1.3%). Additional taxes are levied at partner level. The Dutch Tax Authorities have questioned the fiscal treatment of development cost in KPMG Gebouw Amstelveen II B.V., a subsidiary of KPMG not part of the fiscal unity, and subsequently concluded that the tax return for that subsidiary over fiscal year 2010 is incorrect. The Company has recorded a provision of EUR 5,000 reflecting its best estimate of the exposure. © 2014 KPMG N.V. All rights reserved. 122 9. Fees paid to partners under management agreements The management fee that is payable to a partner is remuneration for professional services performed and for entrepreneurial risk. Partners must make their own pension arrangements and pay social security costs from this fee. The level of the management fees payable to individual partners reflects their roles and specific responsibilities as well as corresponding levels of performance and to a certain extent reflects growth based on seniority in the initial years. In addition to their management fee, the practice companies of the partners also received expense allowances amounting to a total of EUR 3.2 million (2012/2013: EUR 3.5 million) and interest on financing totalling EUR 1.0 million (2012/2013: EUR 1.1 million). These costs are shown in the statement of comprehensive income under other expenses and finance costs, respectively. FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 10. Property, plant and equipment Property, plant and equipment, with the exception of assets under construction, are subject to a first pledge in favour of Coöperatie KPMG U.A. to secure the loans advanced. Fixtures, fittings and alterations Computers and communications equipment Office furniture and equipment Total 16,883 16,847 22,255 55,985 Additions 157 2,813 258 3,228 Disposals -2,004 -2,877 -1,371 -6,252 Balance at 30 September 2013 15,036 16,783 21,142 52,961 Balance at 1 October 2013 15,036 16,783 21,142 52,961 79 1,992 76 2,147 - 11 25 36 Disposals -1,385 -1,536 -873 -3,794 Balance at 30 September 2014 13,730 17,250 20.370 51,350 Balance at 1 October 2012 7,413 8,009 8,304 23,726 Depreciation for the year 1,451 3,899 2,683 8,033 Disposals -1,335 -1,687 -1,336 -4,358 Balance at 30 September 2013 7,529 10,221 9,651 27,401 Balance at 1 October 2013 7,529 10,221 9,651 27,401 Depreciation for the year 1,383 2,613 2,581 6,577 - 5 15 20 -1,385 -1,417 -872 -3,674 7,527 11,422 11,375 30,324 At 1 October 2012 9,470 8,838 13,951 32,259 At 30 September 2013 7,507 6,562 11,491 25,560 At 30 September 2014 6,203 5,828 8,995 21,026 Cost Balance at 1 October 2012 Additions Acquisition of subsidiaries Depreciation and impairment losses Acquisition of subsidiaries Disposals Balance at 30 September 2014 Carrying amounts © 2014 KPMG N.V. All rights reserved. 123 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 11. Intangible assets and goodwill This fiscal year goodwill relates to the 40% acquisition of Innovation Factory Intellectual Property B.V., Innovation Factory Software Services B.V. and Innovation Factory B.V. No impairment is necessary as all acquisitions are part of Advisory and this business segment had positive results in the fiscal year and expect positive results in the coming fiscal year. Key assumptions used in the calculation of recoverable amounts are weighted average costs of capital (WACC), indefinite growth rate and profit before tax of cash generating unit (CGU). These assumptions are as follows: WACC 6%, for Innovation Factory 14.5% Indefinite growth rate 0.0% Profit before tax CGU EUR 66,876 The impairment calculation resulted in sufficient headroom and therefore no impairment. Back office software relates to the implementation of a new system developed by KPMG International. © 2014 KPMG N.V. All rights reserved. Goodwill Customer relationships and similar items Back office software Total Balance at 1 October 2012 4,434 7,200 6,006 17,640 Acquisition of subsidiaries 1,827 383 - 2,210 - - 5,142 5,142 Balance at 30 September 2013 6,261 7,583 11,148 24,992 Balance at 1 October 2013 6,261 7,583 11,148 24,992 Acquisition of subsidiaries 1,516 1,697 - 3,213 - - 26 26 7,777 9,280 11,174 28,231 Balance at 1 October 2012 - 2,096 31 2,127 Amortisation for the year - 1,440 605 2,045 Balance at 30 September 2013 - 3,536 636 4,172 Balance at 1 October 2013 - 3,536 636 4,172 Amortisation for the year - 1,658 1,401 3,059 Balance at 30 September 2014 - 5,194 2,037 7,231 At 1 October 2012 4,434 5,104 5,975 15,513 At 30 September 2013 6,261 4,047 10,512 20,820 At 30 September 2014 7,777 4,086 9,137 21,000 Cost Additions Additions Balance at 30 September 2014 Amortisation and impairment losses Carrying amounts 124 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 12. Receivables 15. Trade receivables Receivables refers to a loan which was granted to a third party regarding the management buy-out of the BPO activities. The interest rate is 8% and will be added to the loan. The loan is measured at fair value at inception and is subsequently measured at amortized costs. All trade receivables are due within one year. They are subject to a first pledge in favour of the bank in connection with the credit facility provided and a second pledge in favour of Coöperatie KPMG U.A. as security for loans advanced. 13. Investment in securities Trade receivables are shown net of impairment losses amounting to EUR 5,830 (2012/2013: EUR 5,573). In the statement of comprehensive income an expense of EUR 1,381 (2012/2013: expense of EUR 679) has been recognised under other expenses. The investment is accounted for as available for sale securities and refers to initial payments in creating a 2.9% interest in the KPMG International Capital investment fund. The fund is being established to invest in opportunities that will generate benefit across a number of KPMG International member firms and will operate through a new entity. 16. Other receivables, prepayments 14. Unbilled services and advance billings Unbilled services are subject to a first pledge in favour of Coöperatie KPMG U.A. as security for loans advanced. 30 September 2013 Unbilled services 31,935 36,239 Advance billings 24,032 26,361 7,903 9,878 © 2014 KPMG N.V. All rights reserved. 30 September 2013 Other receivables 7,854 6,600 Prepayments 6,157 4,206 14,011 10,806 All other receivables are due within one year. 30 September 2014 Balance of unbilled services and advance billings 30 September 2014 125 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 17. Cash and cash equivalents Bank balances, including business savings accounts, are subject to a first pledge in favour of Coöperatie KPMG U.A. to secure loans advanced. 19. Coöperatie KPMG U.A. 30 September 2014 30 September 2013 39,473 39,438 3,726 4,452 13,651 14,903 17,377 19,355 2,059 2,337 58,909 61,130 2013/2014 2012/2013 Balance at the beginning of the year 39,438 57,287 Fees to partners under management agreements 58,976 62,299 691 1,390 -59,632 -81,538 39,473 39,438 Partners: - current loans Coöperatie KPMG U.A. 18. Equity Former partners: - non-current loans Coöperatie KPMG U.A. The Company has authorised capital of EUR 20 million (2012/2013: EUR 20 million), which is divided into 800 shares of EUR 25 each (2012/2013: 800 shares of EUR 25 each). The issued share capital consists of 220 (2012/2013: 220) shares at a nominal value of EUR 25 (2012/2013: EUR 25) each, representing a total nominal value of EUR 5.5 million (2012/2013: EUR 5.5 million). All of the shares are fully paid up. - current loans Coöperatie KPMG U.A. VAT liability Movements in financing by partners: The number of shares in issue at 30 September was 205 (2012/2013: 205). KPMG N.V. is obliged to distribute all earnings that constitute profits as part of fees paid to partners under the management agreements or as dividend, except for the amount the Board of Management proposes to add to the reserves. Reserves are set up over a 5 year period to finance goodwill on acquisitions. Interest due to Coöperatie KPMG U.A. relating to partners Other movements (net withdrawal) Balance at the end of the year Other movements refer mainly to amounts withdrawn by partners. © 2014 KPMG N.V. All rights reserved. 126 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Current loans from Coöperatie KPMG U.A. relating to partners The interest charged on current loans is 2.7% (2012/2013: 2.3%). Movements in long-term employee benefits: Loans from former partners Non-current loans from former partners have an average term of 3.1 years (2012/2013: 3.3 years) and an average interest rate of 1.6% (2012/2013: 1.2%). The average interest on current loans from former partners is 1.6% (2012/2013: 1.5%). Balance at 1 October 2012/2013 3,598 3,466 Interest 41 87 Utilised -386 -488 Addition 131 365 31 168 3,415 3,598 25,511 22,309 28,926 25,907 Change in discount rate The fair value of loans from Coöperatie KPMG U.A. approximates the carrying amount. Balance at 30 September Short-term employee benefit obligations 20. Employee benefits Employee benefits consist of long-term pension plans that supplement WAO (Occupational Disability Insurance Act) benefits, provisions for longservice entitlements, and a number of special schemes and current employee benefit obligations relating to accrued holiday allowances, bonuses and overtime as well as holiday entitlements. 30 September 2014 30 September 2013 < 1 year > 1 year Total < 1 year > 1 year Total Long-term employee benefits 437 2,978 3,415 540 3,058 3,598 Short-term employee benefit obligations 25,511 - 25,511 22,309 - 22,309 25,948 2,978 28,926 22,849 3,058 25,907 © 2014 KPMG N.V. All rights reserved. 2013/2014 21. Bank loans Bank loans refers to a loan granted to Innovation Factory at 6.45%. The loan expires on 1 January 2022 and is repayable in quarterly instalments. 127 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 22. Provisions 23. Trade and other payables Movements in provisions in 2013/2014: Trade payables Vacant properties Balance at 1 October Tax and social insurance contributions 2,064 Utilised -582 Added 4,302 Balance at 30 September 5,784 Other current liabilities Accruals 30 September 2014 30 September 2013 8,905 4,717 22,564 25,201 7,117 1,846 11,570 13,058 50,156 44,822 Trade payables increased mainly due to payables to lease car companies and to related parties. Other current liabilities increased due to liabilities for professional indemnity insurance and goodwill obligations regarding the acquisition of Innovation Factory. Accruals have been made primarily to cover premises costs and charges for third-party services still to be paid. The addition of the provision for vacant properties relates to the office buildings in Amstelveen and Rotterdam. The periods within which provisions are expected to be utilised are as follows: 24. Financial instruments 30 September 2014 Provision for vacant properties 30 September 2013 < 1 year > 1 year Total < 1 year 2,252 3,532 5,784 581 > 1 year 1,483 Total 2,064 Financial instruments that are used by KPMG N.V. arise directly from normal business operations. Share capital and any liabilities to, and receivables from, partners and former partners through Coöperatie KPMG U.A. are also regarded as financial instruments. These financial instruments are used to finance normal business activities. During the period under review it was KPMG N.V.’s policy not to trade in financial instruments. The Company is exposed to credit, interest, liquidity and foreign exchange risks as part of its normal business operations. KPMG N.V. does not trade in financial derivatives and has procedures and policies in place to limit the credit risk relating to counterparty default or market risk. © 2014 KPMG N.V. All rights reserved. 128 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 If a counterparty defaults in its payments due to KPMG N.V., any resulting losses will be limited to the fair value of the instruments concerned. The contract values or notional principals of the financial instruments are only an indication of the extent to which such financial instruments are used, and do not reflect credit or market risks. These notes provide information about the extent to which KPMG N.V. is exposed to the specified risks and also the objectives, policies and processes relating to the measurement and management of these risks as well as management of capital by KPMG N.V. The Board of Management evaluates and confirms the policy for mitigating each of these risks as summarised below. There were no changes to the policy during the period under review. The Board of Management has general responsibility for establishing and supervising risk management. KPMG N.V.’s risk management policy is used to identify and analyse the risks to which KPMG N.V. is exposed, to set risk limits and controls and to monitor and minimise risks. The risk management policy and the relevant systems are regularly tested against changes in market conditions and KPMG N.V.’s business activities. © 2014 KPMG N.V. All rights reserved. Credit risk It is inherent in the nature of the activities of the organisation that it is exposed to credit risk. This risk relates to the loss that may be incurred if a counterparty defaults. It is limited mainly by depositing cash with rated A or higher banks and by the large number and diversity of parties that owe amounts to the organisation for unbilled services. The carrying amount of each financial asset represents the maximum credit risk. Trade and other receivables/trade and other payables The exposure to credit risks is monitored continuously, and the creditworthiness of all clients is checked for transactions exceeding a certain amount. KPMG N.V. does not require protection in respect of non-current financial assets. Credit risk exposure is mitigated by the large number and diversity of clients and therefore by diversifying risk. Only a limited percentage of revenue is attributable to each single client and, as a result, there is no major concentration of credit risk at the level of individual clients. 129 The recoverable amount of unbilled services and trade receivables is estimated every quarter. Profit is recognised on a pro rata basis in relation to the progress of the project concerned. The important factors to be considered when estimating unbilled services and trade receivables are the terms and conditions of the contract and the progress and results of the work performed. The financial position of the debtor is important when assessing the provision for doubtful debts. The measurement of unbilled services and trade receivables is assessed quarterly. A different estimate of the value of unbilled services and trade receivables can lead to different amounts of income and other expenses being recognised and to different figures for unbilled services and trade receivables recognised in the statement of financial position. Guarantee deposits Guarantee deposits are only permitted with counterparties whose creditworthiness is comparable to or higher than that of KPMG N.V. FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Movement in the provision for doubtful debts: Exposure to credit risk Maximum exposure to credit risk at 30 September. 2014 2013 2013/2014 2012/2013 393 - Balance at 1 October 5,572 5,814 Unbilled services 31,935 36,239 Trade receivables 87,035 94,677 Added 7,412 4,383 Other receivables 14,011 10,806 Written off -1,160 -938 Cash and cash equivalents 27,835 3,107 -5,994 -3,687 161,209 144,829 5,830 5,572 Non-current receivable Released Balance at 30 September Provision for doubtful debts Debtor ageing analysis: 30 September 2014 30 September 2013 Gross Provision Gross Provision Not yet due: age 0-15 days 32,724 0 34,717 6 Overdue: age 16-180 days 45,102 320 51,667 104 Overdue: age 181-365 days 3,863 1,555 2,959 1,502 Overdue: age over 365 days 5,346 3,955 5,334 3,960 87,035 5,830 94,677 5,572 Provisions for doubtful debts are determined for each individual debtor. It has been established on the basis of historical insolvency frequency data and the current economic conditions that no additional provisions for impairment are necessary. © 2014 KPMG N.V. All rights reserved. Liquidity risk Liquidity risk is the risk that KPMG N.V. will be unable to meet its financial liabilities as they fall due. KPMG N.V.’s liquidity management policy is to ensure as far as possible that there are sufficient liquid funds available to be able to meet its liabilities when due without incurring unacceptable losses or damaging its reputation. The aim of KPMG N.V.’s treasury policy is to ensure that there are sufficient funds available to finance day-to-day activities. Surplus funds are deposited in business savings accounts or held for specified periods. KPMG N.V. has a loan facility of EUR 50 million (2012/2013: EUR 50 million), of which a draw down was made of EUR 0.1 million (2012/2013: no draw down) in the form of guarantees. A first right of pledge has been granted on trade receivables as security. 130 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 KPMG has to maintain a certain solvency ratio in connection with the credit facility made available by the bank. This solvency ratio is defined as equity plus loans granted by Coöperatie KPMG U.A., less capitalised intangible assets and goodwill and less amounts due from Coöperatie KPMG U.A., divided by consolidated total assets. It should amount to at least 20%. At 30 September 2014, the solvency ratio was 26.3% (30 September 2013: 29.8%). Market risk Market risk is the risk of changes in market prices, such as exchange rates and interest rates, will affect the income of KPMG N.V. or the value of its assets. The aim is to keep these market risks within acceptable limits, while maximising income. In the longer term, however, permanent changes in exchange and interest rates will have an impact on consolidated profits. Summary of financial liabilities: Carrying amount Contractual cash flows Due within 1 year Due after 1 year Coöperatie KPMG U.A. 58,909 60,392 56,597 3,795 Trade and other payables 50,156 55,069 55,069 - Employee benefits 28,926 28,926 25,948 2,978 762 1,036 361 675 138,753 145,423 137,975 7,448 Coöperatie KPMG U.A. 61,130 63,367 58,791 4,576 Trade and other payables 44,822 44,822 44,822 - Employee benefits 25,907 25,907 22,849 3,058 131,859 134,096 126,462 7,634 Interest rate risk The financial assets of KPMG N.V. consist primarily of investments in noncurrent assets, trade receivables and cash and cash equivalents. Trade and other receivables do not bear interest. 30 September 2014 Bank loans 30 September 2013 © 2014 KPMG N.V. All rights reserved. It is estimated that as at 30 September 2014, a general rise in interest rates by one percentage point would have no effect on the Company’s profit before tax (30 September 2013: decrease EUR 0.3 million). The table on the next page presents the effective interest rates for interestbearing financial assets and financial liabilities at the reporting date and the contractual maturities for these assets and liabilities (excluding interest receipts and payments): 131 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Effective interest rate < 1 year > 1 year < 2 year > 2 year < 3 year > 3 year < 4 year > 4 year < 5 year longer than 5 years Total carrying ammount Receivable 8.0% - - - - 393 - 393 Cash and cash equivalents 0.1% 27,835 - - - - - 27,835 Loans from partners 2.7% -39,473 - - - - - -39,473 Loans from former partners 1.6% -13,651 -1,925 -850 -604 -231 -116 -17,377 6.45% -339 -68 -68 -68 -68 -151 -762 -25,628 -1,993 -918 -672 94 -267 -29,384 2013/2014 Bank loans 2012/2013 Cash and cash equivalents 0.0% 3,107 - - - - - 3,107 Loans from partners 2.3% -39,438 - - - - - -39,438 Loans from former partners 1.5% -14,903 -1,908 -1,536 -525 -329 -154 -19,355 -51,234 -1,908 -1,536 -525 -329 -154 -55,686 Currency risk Transactions are only carried out in foreign currency on a limited basis, and assets and liabilities are also usually denominated in euros. For these reasons, foreign currency risks are limited. When derivative financial instruments are used to hedge exposure to foreign exchange risks associated with recognised monetary assets or liabilities, hedge accounting is not © 2014 KPMG N.V. All rights reserved. applied and any gain or loss on a hedging instrument is recognised in the statement of comprehensive income. It is estimated that a general drop in the value of the euro by one percentage point relative to other currencies would have reduced the Company’s profit before tax for 2013/2014 by approximately EUR 0.1 million (2012/2013: EUR 0.1 million). 132 Fair value The principal methods and assumptions used to estimate the fair values of financial instruments are set out below. For all instruments below the fair value measurement is based upon level 3, unobservable inputs. FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Deposits In view of the short maturity of deposits, their fair value is equal to nominal value. Interest-bearing loans Fair value is calculated based upon discounted future repayments and interest payments. In view of the short remaining maturity of interest-bearing loans, their fair value is assumed to be equal to nominal value. Trade and other receivables/trade and other payables For receivables and payables with a maturity of less than one year, face value is considered to be a reflection of fair value. All other receivables and payables are discounted to determine their fair values. Capital management The Board of Management’s policy aims at maintaining a strong capital position in order to retain the confidence of clients, creditors and finance providers and to ensure future development of business activities. © 2014 KPMG N.V. All rights reserved. The Company is largely financed by Coöperatie KPMG U.A., partly by a contribution of EUR 100 per partner to the Company’s equity, and partly via loans. Of the total other reserves amount of EUR 5.6 million, EUR 2.2 million will be paid out as dividends during the 2014/2015 financial year. Average financing per partner (excluding other reserves) amounted to EUR 372 as at 30 September 2014, compared with EUR 345 as at 30 September 2013. Total financing by partners as at 30 September 2014 amounted to 27.9% of total assets (30 September 2013: 31.0%). The Company may repurchase shares from Coöperatie KPMG U.A. and sell them back to Coöperatie KPMG U.A. in connection with partners who are leaving or joining the Company. These transactions are carried out at nominal value plus a share premium. No changes were made to the Company’s approach to capital management during the year. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements. 133 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 25. Operating leases and other commitments The commitments regarding property leases increased due to renegotiated of the lease of the Amstelveen office. Due to that the duration was extended with 11 years at a lower lease per year. The Company has long-term property leases, operating leases for cars, personal computers, photocopiers and printers, and commitments under long-term sponsorship agreements totalling EUR 285,108 (2012/2013: EUR 245,403). The future rental income from sub-leases is as follows: The nominal commitments fall due as follows: 30 September 2013 4,325 3,446 Between 1 and 5 years 13,204 11,184 After 5 years 29,173 11,300 46,702 25,930 Within 1 year 30 September 2014 Property leases Operating leases (cars) Other contracts Total Within 1 year 21,593 15,097 9,956 46,646 Between 1 - 5 years 74,935 19,436 12,911 107,282 130,282 - 898 131,180 226,810 34,533 23,765 285,108 After 5 years 30 September 2014 The following operating lease and rental expenses were recognised in the consolidated statement of comprehensive income for the year ended 30 September 2014: 2013/2014 2012/2013 Properties 22,920 25,237 Cars 14,254 14,858 6,719 12,545 30 September 2013 Property leases Operating leases (cars) Other contracts Total Within 1 year 24,390 16,489 6,719 47,598 Between 1 - 5 years 90,253 30,512 13,655 134,420 After 5 years 62,848 - 537 63,385 177,491 47,001 20,911 245,403 © 2014 KPMG N.V. All rights reserved. Other contracts 134 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 26. List of subsidiaries 27. Contingencies Unless otherwise stated, the following subsidiaries are wholly owned by KPMG N.V. For EUR 0.1 million bank guarantees are issued as per 30 September 2014 (2012/2013: no bank guarantees). KPMG Accountants N.V. KPMG MKB B.V. KPAS B.V. KPMG Advisory N.V. KPMG Management Services B.V. KPMG Staffing & Facility Services B.V. KPMG Gebouw Amstelveen II Holding B.V. KPMG Gebouw Amstelveen II B.V. (70%) EquaTerra B.V. EquaTerra Sourcing Management B.V. Plexus Medical Group N.V. Bridging Solutions B.V. Innovation Factory Intellectual Property B.V. (40%) Innovation Factory Software Services B.V. (40%) Innovation Factory B.V. (40%) KPMG N.V. has issued two letters of comfort relating to a facility of USD 85 million and a facility of USD 125 million for KPMG International. In these letters of comfort KPMG N.V. confirms that it is a member of KPMG International and that it will pay its contribution in accordance with the Articles of Association of KPMG International and the ‘Membership Agreement’. Amstelveen Amstelveen Amstelveen Amstelveen Amstelveen Amstelveen Amstelveen Amstelveen De Meern De Meern Amsterdam Hilversum Amsterdam Amsterdam Amsterdam Although KPMG owns less than half of Innovation Factory Intellectual Property B.V., Innovation Factory Software Services B.V. and Innovation Factory B.V. and has less than half of their voting power, management has determined that the Cooperative controls these three entities. The Cooperative controls these subsidiaries by virtue of an agreement with one of its other shareholders. © 2014 KPMG N.V. All rights reserved. Claims have been filed and proceedings have been instituted against the Company and its subsidiaries on the grounds of alleged failure to perform professional duties. These claims are being opposed. KPMG N.V. carries professional indemnity insurance. The investigation of the Dutch Tax Authorities and public prosecutor with respect to the tax position of KPMG Gebouw II B.V., a subsidiary of KPMG N.V. has not been finalized. The Company has recorded a provision reflecting its best estimate of the exposure. The Board of Management believes that it is unlikely that the outcome of the procedures in relation to the claims referred to above will have a materially adverse effect on the Company’s future financial position or profits. 135 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 28. Collaboration agreements and related parties Transactions with key management personnel Collaboration agreements The following information relates to the Company’s Board of Management. KPMG Meijburg & Co In The Netherlands, the Company collaborates with an independent firm of tax consultants, KPMG Meijburg & Co. The financial figures of this firm are not included in the consolidated financial statements of KPMG N.V. KPMG International KPMG N.V., registered with the trade register in the Netherlands, is a subsidiary of Coöperatie KPMG U.A. and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. As a result of this affiliation, the Company collaborates closely with other member firms. 2013/2014 2012/2013 Number of members of the Board of Management during the year 3,40 4,25 Fees paid under management agreement/salaries 2,151 2,138 Severance payment 1,419 - Expense allowances 73 80 Interest paid on partners’ accounts 15 26 The members of the Board of Management are required to fund their pension provision and social security costs from this remuneration. The Supervisory Board members do not receive a remuneration. Identity of related parties In addition to direct and indirect equity holdings, KPMG N.V. has a relationship with Coöperatie KPMG U.A. The members of the Cooperative are the practice limited companies owned by partners. Under these agreements, partners are made available to the Cooperative, which in turn makes these partners available to KPMG N.V. and its subsidiaries to perform their duties in the Audit or Advisory business segments. © 2014 KPMG N.V. All rights reserved. 136 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 29. Accounting estimates and judgements are such that it is reasonable to assume that they will result in the group entity being held liable on the grounds of alleged failure to perform professional duties. A decision is taken on a case-by-case basis as to whether it is probable that settlement of the case will involve an outflow of resources from the Company. The estimates of both the probability of an outflow of resources and the amounts required are subjective. In general, such proceedings are long-term in nature and estimates are therefore revised from time to time. Critical accounting estimates have been made in respect of the following items: • Measurement of unbilled services and trade receivables. Every quarter, the recoverable amounts of unbilled services and trade receivables are estimated. Profit is recognised pro rata in relation to the progress of each project concerned. The important factors to be considered when estimating unbilled services and trade receivables are the terms and conditions of contract, work progress and results of work performed. The financial position of the debtor is important when assessing the provision for doubtful debts. The measurement of unbilled services and trade receivables is assessed quarterly. A different estimate of the value of unbilled services and trade receivables can lead to different amounts of income and other expenses being recognised and to different figures for unbilled services and trade receivables presented in the statement of financial position. • Provision for claims/legal proceedings The provision for claims/legal proceedings is determined following an evaluation of the matters that resulted in the group entity being held liable by third parties, or the matters in which the relevant circumstances © 2014 KPMG N.V. All rights reserved. • Provision for vacant properties The key factors that determine the provision for leased vacant properties are the tenancy period and the other terms and conditions of the lease, an assessment of the options to surrender the lease or to sublet the space leased to third parties, and an estimate of any rental income that may be earned as a result. • Intangible assets The key factors that determine the valuation of intangible assets as a result of acquisitions, are based upon contractual conditions, existing clients and engagements, past results and scenarios of future results, and discount factors based upon the type and maturity of the organization, and the industry the company is part of. 137 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Separate statement of financial position The statement of financial position was drawn up prior to the distribution of profit. Note 30 September 2014 30 September 2013 5,500 5,500 10,400 12,600 (in thousands of euros) Equity and liabilities Note 30 September 2014 30 September 2013 Equity 4 (in thousands of euros) Share capital Assets Share premium Non-current assets Reserves 2,360 2,360 Non-current financial assets: Profit for the year 3,264 2,626 21,524 23,086 3,726 4,452 - loans from partners 39,473 39,438 - loans from former partners 13,651 14,903 2,059 2,337 Amounts owed to group companies 16,082 6,632 Tax and social insurance contributions 23,576 16,882 94,841 80,192 98,567 84,644 120,091 107,730 Investments in group companies 28,940 7,716 393 - Receivable 9,333 Total equity 7,716 Current assets Coöperatie KPMG U.A. relating to: Amounts due from group companies Cash and cash equivalents Total assets Non-current liabilities 3 87,986 96,922 22,772 3,092 Loans from former partners 110,758 100,014 Current liabilities 120,091 107,730 Coöperatie KPMG U.A. relating to: - VAT liability Total liabilities Total equity and liabilities 5 The notes on pages 40 to 43 inclusive form an integral part of these company financial statements. © 2014 KPMG N.V. All rights reserved. 138 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Separate statement of comprehensive income For the year ended 30 September 2014 2013/2014 2012/2013 Profits of group companies 11,043 11,483 Other income 51,097 53,442 -58,876 -62,299 3,264 2,626 (in thousands of euros) Fees paid to partners under management agreements Profit after tax The notes on pages 40 to 43 inclusive form an integral part of these company financial statements. © 2014 KPMG N.V. All rights reserved. 139 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Notes to the separate financial statements All amounts are in thousands of euros unless otherwise stated. 1. Accounting policies General The separate financial statements form part of the 2013/2014 financial statements of KPMG N.V. Accounting policies KPMG N.V. has elected to exercise the option provided under Section 362(8) of Book 2 of the Netherlands Civil Code. This means that the same accounting policies have been used for the separate financial statements of KPMG N.V. as for the consolidated EU IFRS financial statements. Equity accounted investees over which significant influence is exercised have been measured according to the equity accounting method. These consolidated EU IFRS financial statements have been drawn up in accordance with the standards (‘EU IFRS’) approved by the International Accounting Standards Board and adopted by the European Union. Details of these policies are provided in notes 1.3 to 1.21 to the consolidated financial statements. For these separate financial statements NL-GAAP is applied. © 2014 KPMG N.V. All rights reserved. The share of profit or loss of group companies in which KPMG N.V. has an interest comprises the latter’s share of profit or loss of these group companies. Gains or losses on transactions involving the transfer of assets and liabilities between KPMG N.V. and its equity accounted investees, or the transfer of assets and liabilities between equity accounted investees, are not recognised to the extent that they are regarded as unrealised. Profits of group companies The terms governing profits of group companies are laid down by contract between KPMG N.V. and its operating companies, which specifies that 97.5% of their revenue – less any amount payable by the relevant companies to KPMG Staffing & Facility Services B.V. for services provided by KPMG Staffing & Facility Services B.V. to the companies concerned, and less expenses that they are required to bear themselves – must be paid to KPMG N.V. for the provision of services by partners and finance. the Company’s statement of comprehensive income has been presented in abridged form in accordance with Section 402, Part 9, Book 2 of the Netherlands Civil Code. 2. Non-current financial assets This represents investments in group companies. Movements in these investments during the 2013/2014 financial year: 2013/2014 2012/2013 Balance at 1 October 7,716 7,691 Additions 1,224 25 Profits of group companies 11,043 11,483 Dividends received from group companies -11,043 -11,483 8,940 7,716 Balance at 30 September A list of significant subsidiaries is disclosed in note 26 of the consolidated financial statements. Other Since the figures of KPMG N.V. are included in the consolidated financial statements that form part of these financial statements, 140 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 3. Cash and cash equivalents 4. Equity Cash and cash equivalents comprise cash at hand and bank balances and are freely available. The interest rate applicable to business savings accounts was 0.7% over the first EUR 2,5 million; in the previous year 1.4%. Details of equity are disclosed in note 18 to the consolidated financial statements and the consolidated statement of changes in equity. 5. Coöperatie KPMG U.A. 30 September 2014 30 September 2013 39,473 39,438 Partners: - current loans Coöperatie KPMG U.A. Former partners: - non-current loans Coöperatie KPMG U.A. - current loans Coöperatie KPMG U.A. 3,726 4,452 13,651 14,903 VAT liability 17,377 19,355 2,059 2,337 58,909 61,130 Movements in financing by partners: 2013/2014 2012/2013 Balance at the beginning of the year 39,438 57,287 Fees paid to partners under management agreements 58,976 62,299 691 1,390 -59,632 -81,538 39,473 39,438 Interest due to partners Other movements (net withdrawal) Balance at the end of the year © 2014 KPMG N.V. All rights reserved. 141 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Other movements refer mainly to amounts withdrawn by partners. Loans from Coöperatie KPMG U.A. relating to partners The interest charged on current loans is 2.7% (2012/2013: 2.3%). Partners also have the opportunity to subscribe on one year deposits, the total amount subscribed in 2013/2014 was EUR 10.6 million with an interest rate of 4.0% (2012/2013 EUR 11.5 million at 3.1%). Loans from Coöperatie KPMG U.A. relating to former partners Non-current loans from former partners have an average term of 3.1 years (2012/2013: 3.3 years) and an average interest rate of 1.6% (2012/2013: 1.2%). The average interest on current loans from former partners is 1.6% (2012/2013: 1.5%). 6. Financial instruments Details on financial instruments are provided in note 24 to the consolidated financial statements. 7. Contingencies Joint and several liability and guarantees The Company has given guarantees that its subsidiaries, whose financial figures are included in the consolidated financial statements, will comply with certain contractual obligations. KPMG N.V. has issued two letters of comfort relating to a facility of USD 85 million and a facility of USD 125 million for KPMG International. In these letters of comfort KPMG N.V. has confirmed that it is a member of KPMG International and that it will pay its contribution in accordance with the Articles of Association of KPMG International and the Membership Agreement. Tax group Together with its subsidiaries, excluding KPMG Gebouw Amstelveen II B.V. and Innovation Factory, KPMG N.V. forms a tax group for value added tax and corporation tax purposes; each of the companies of the tax group is, under the relevant standard tax conditions, jointly and severally liable for the tax payable by all of the companies in the tax group. KPMG N.V. incurs the income tax expense of the tax group. 8. Number of partners On average, 149 (2012/2013: 167) partners were active for the Company under management agreements. KPMG N.V. has a loan facility of EUR 50 million (2012/2013: EUR 50 million), of which a draw down was made of EUR 0.1 million (2012/2013: no draw down) in the form of guarantees. © 2014 KPMG N.V. All rights reserved. 142 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 9. Remuneration of the Board of Management Details of the remuneration of members of the Board of Management are disclosed in note 28 to the consolidated financial statements. 10. Auditors’ remuneration The remuneration of the Company’s auditors for the 2013/2014 financial year was EUR 0.1 million (2012/2013: EUR 0.1 million) and related to the audit of financial statements of the Company. Amstelveen, 25 November 2014 Board of Management under the Articles of Association: J.H.M. Hommen (chairman) A.J.A. Cranston J. van Delden B. Ferwerda R.G.A. Fijneman M.A. Hogeboom B. Lamberts © 2014 KPMG N.V. All rights reserved. Supervisory Board: E.H.W. Weusten (chairman) D.E.M. Aleman M.O. Sloterdijk R.R.J. Smeets 143 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Other Information Independent auditors’ report Please refer to the report of the independent auditors below. Provisions in the Company’s Articles of Association governing the appropriation of profit Article 29 of the Company’s Articles of Association reads as follows: • Distribution of profit pursuant to the provisions of this article shall be made after approval of the financial statements disclosing that such distribution is permitted. • The profit shall be at the disposal of the General Meeting of Shareholders. © 2014 KPMG N.V. All rights reserved. • The Company may make distributions to the shareholders and other persons entitled to distributable profits only to the extent that its capital and reserves exceed the sum of the issued capital and the reserves that must be maintained by law. • A deficit may only be offset against the statutory reserves to the extent permitted by law. Appropriation of profit KPMG N.V.’s profit totals EUR 3,264 and the Company proposes to pay EUR 2,245 as dividends and EUR 1,019 will be added to the reserves. 144 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 © 2014 KPMG N.V. All rights reserved. 145 FINANCIAL STATEMENTS INTEGRATED REPORT 2013/2014 Work performed to reach a conclusion We carried out the following work for the major KPI’s as disclosed in the transparency report of KPMG N.V. in paragraph 3.3.5- External assurance: To: the readers of the KPMG N.V. Integrated Report 2013/2014 INDEPENDENT ASSURANCE REPORT Grant Thornton Accountants en Adviseurs B.V. De Passage 150 P.O. Box 71003 1008 BA Amsterdam The Netherlands T +31 88 676 90 00 F +31 88 676 90 10 www.gt.nl • A media analysis and internet search to identify relevant environmental, safety and social issues for KPMG in the reporting period • Interviewing staff at corporate level who are responsible for the information provided in the non-financial information; • Reviewing the design and implementation of systems and processes for collection and processing, including aggregation of data into non-financial information; • We have been engaged by the Board of Management of KPMG N.V. (hereafter: KPMG) to provide assurance on the non-financial information as defined in chapter 3 in the Integrated Report 2013/2014. The non-financial information, including the identification of material issues, is the responsibility of the Board of KPMG. Our responsibility is to issue an assurance report on the non-financial information. Reviewing internal and external documentation on a sample basis to determine whether the non-financial information is adequately supported. As part of our assurance procedures we discussed changes to the draft reports with KPMG, and reviewed the final version of the non-financial information to ensure that it reflected our findings. Scope of assurance engagement Conclusion Our engagement was designed to provide limited assurance on whether the non-financial information is fairly presented, in all material respects, in accordance with the reporting criteria. The cross references in the non-financial information to other parts of the Integrated Report and the information contained in these other parts are not part of the scope of our assurance engagement. Based on the procedures performed, as described above, we conclude that the non financial information does not, in all material respects, appear to be unfairly stated in accordance with the reporting criteria applied by KPMG. Amsterdam, 9 December 2014 Procedures performed to obtain a limited level of assurance are aimed at determining the plausibility of information and are less extensive than those for a reasonable level of assurance. We do not provide assurance on the feasibility of goals, expectations and ambitions of KPMG. Grant Thornton Accountant en Adviseurs B.V. Reporting criteria used by KPMG N.H.B. Jonker RA KPMG applies the Sustainability Reporting Guidelines (G4) of the Global Reporting Initiative, together with internally developed guidelines, for reporting on non-financial information, as also disclosed in the GRI section of the Integrated Report. The nonfinancial information should be viewed against this disclosure. Assurance standard We conducted our engagement in accordance with the Dutch Standard 3810N: “Assurance engagements relating to sustainability reports”. This standard requires, among others, that the assurance team possesses the specific knowledge, skills and professional competencies needed to provide assurance on non-financial information, and that they comply with the requirements of the Code of Ethics for Professional Accountants of the International Federation of Accountants to ensure their independence. Grant Thornton Accountants en Adviseurs B.V. is a member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton Accountants en Adviseurs B.V. is registered with the Chamber of Commerce of The Hague trade register under number 28105565. To all our services our general conditions, as registered with the Registry of the District Court in The Hague, apply. A copy of these conditions will be sent to you on request. Any liability shall be limited to the amount which is mentioned in the general conditions. © 2014 KPMG N.V. All rights reserved. 146 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference Strategic priorities and key topics for the short and medium term with regard to sustainability, including respect for internationally recognised standards and how such standards relate to long term organisational strategy and success. 17-18 This also relates to Audit Firm Code (‘Code Accoun­tantsorganisatie’), principle 1.1 Broader trends (such as macroeconomic or political) affecting the organisation and influencing sustainability priorities. 5-13 Key events, achievements, and failures during the reporting period. 5-13 Views on performance with respect to targets. 5-13 Outlook on the organisation’s main challenges and targets for the next year and goals for the coming 3-5 years. 5-13 Strategy and Analysis G4-1 G4-2 Statement from the most senior decision-maker about the relevance of sustainability to the organisation and the organisation’s strategy for addressing sustainability. SECTION ONE should focus on the organisation’s key impacts on sustainability and effects on stakeholders, including rights as defined by national laws and relevant internationally recognised standards. This should take into account the range of reasonable expectations and interests of the organisation’s stakeholders. This section should include: Section 1: description of significant economic, environmental and social impacts of the organisation, and 23-30 associated challenges and opportunities. This includes the effect on stakeholders’ rights as defined by national laws and the expectations in internationally recognised standards and norms. SECTION TWO should focus on the impact of sustainability trends, risks, and opportunities on the long- term prospects and financial performance of the organisation. This should concentrate specifically on information relevant to financial stakeholders or that could become so in the future. Section 1: an explanation of the approach to prioritising these challenges and opportunities. 17-18 Section 1: key conclusions about progress in addressing these topics and related performance in the reporting period. This includes an assessment of reasons for underperformance or over-performance. 23-30 A description of the main processes in place to address performance and relevant changes. 17-18 Section 2: description of the most important risks and opportunities for the organisation arising from sustainability trends. 75-79 Section 2: Prioritization of key sustainability topics as risks and opportunities according to their relevance for long-term organisational strategy, competitive position, qualitative, and (if possible) quantitative financial value drivers. 75-79 Section 2: Table(s) summarising: --Targets, performance against targets, and lessons learned for the current reporting period --Targets for the next reporting period and medium term objectives and goals (that is, 3-5 years) related to key risks and opportunities. 17-18; 75-79 Section 2: concise description of governance mechanisms in place specifically to manage these risks and opportunities, and identification of other related risks and opportunities. 75-79 Organisational Profile G4-3 Report the name of the organisation. Cover G4-4 Report the primary brands, products, and services 67 G4-5 Report the location of the organisation's headquarters. 67 © 2014 KPMG N.V. All rights reserved. 147 AFC 1.5 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page G4-6 Report the number of countries where the organisation operates, and names of countries where either the organisation has significant operations or that are specifically relevant to the sustainability topics covered in the report. 67 G4-7 Report the nature of ownership and legal form. 70-73 G4-8 Report the markets served (including geographic breakdown, sectors served, and types of customers and beneficiaries). 52 G4-9 Report the scale of the organisation, including: a. Total number of employees b.Total number of operations c.Net sales (for private sector organisations) or net revenues (for public sector organisations) d.Total capitalization broken down in terms of debt and equity (for - Quantity of products or services provided 48; 57 G4-10 a.Report the total number of employees by employment contract and gender. b.Report the total number of permanent employees by employment type and gender. c.Report the total workforce by employees and supervised workers and by gender. d.Report the total workforce by region and gender. e.Report whether a substantial portion of the organisation’s work is performed by workers who are legally recognised as self-employed, or by individuals other than employees or supervised workers, including employees and supervised employees of contractors. f. Report any significant variations in employment numbers (such as seasonal variations in employment in the tourism or agricultural industries). 48 G4-11 Report Report the percentage of total employees covered by collective bargaining agreements. G4-12 Describe the organisation’s supply chain. 29 G4-13 Report any significant changes during the reporting period regarding the organisation’s size, structure, ownership, or its supply chain, including: --Changes in the location of, or changes in, operations, including facility openings, closings, and expansions --Changes in the share capital structure and other capital formation, maintenance, and alteration operations (for private sector organisations) --Changes in the location of suppliers, the structure of the supply chain, or in relationships with suppliers, including selection and termination 30 G4-14 Report whether and how the precautionary approach or principle is addressed by the organisation. 68 G4-15 List externally developed economic, environmental and social charters, principles, or other initiatives to which the organisation subscribes or which it endorses. 44, 45 © 2014 KPMG N.V. All rights reserved. 148 Reference 0% INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure G4-16 Further explanation Page List memberships of associations (such as industry associations) and national or international advocacy organisations in which the organisation: --Holds a position on the governance body --Participates in projects or committees --Provides substantive funding beyond routine membership dues --Views membership as strategic 49 Reference Identified Material Aspects and Boundaries G4-17 a.List all entities included in the organisation's consolidated financial statements or equivalent documents. b.Report whether any entity included in the organisation's consolidated financial statements or equivalent documents is not covered by the report. The organisation can report on this Standard Disclosure by referencing the information in publicly available consolidated financial statements or equivalent documents. 135 G4-18 a.Explain the process for defining the report content and the Aspect Boundaries. b.Explain how the organisation has implemented the Reporting Principles for Defining Report Content. 29 G4-19 List all the material Aspects identified in the process for defining report content. 29 G4-20 For each material Aspect, report the Aspect Boundary within the organisation, as follows: --Report whether the Aspect is material within the organisation --If the Aspect is not material for all entities within the organisation (as described in G4-17), select one of the following two approaches and report either: --The list of entities or groups of entities included in G4-17 for which the Aspect is not material or --The list of entities or groups of entities included in G4-17 for which the Aspects is material Report any specific limitation regarding the Aspect Boundary within the organisation. 29 G4-21 For each material Aspect, report the Aspect Boundary outside the organisation, as follows: --Report whether the Aspect is material outside of the organisation --If the Aspect is material outside of the organisation, identify the entities, groups of entities or elements for which the Aspect is material. In addition, describe the geographical location where the Aspect is material for the entities identified --Report any specific limitation regarding the Aspect Boundary outside the organisation 29 G4-22 Report the effect of any restatements of information provided in previous reports, and the reasons for such restatements. 30 G4-23 Report significant changes from previous reporting periods in the Scope and Aspect Boundaries No particular changes Stakeholder Engagement G4-24 Provide a list of stakeholder groups engaged by the organisation. 23-25 G4-25 Report the basis for identification and selection of stakeholders with whom to engage. 23 © 2014 KPMG N.V. All rights reserved. 149 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page G4-26 Report the organisation's approach to stakeholder engagement, including frequency of engagement by type and by stakeholder group, and an indication of whether any of the engagement was undertaken specifically as part of the report preparation process. 23-25 G4-27 Report key topics and concerns that have been raised through stakeholder engagement, and how the organisation has responded to those key topics and concerns, including through its reporting. Report the stakeholder groups that raised each of the key topics and concerns. 25 Reference Report Profile G4-28 Reporting period (such as fiscal or calendar year) for information provided. Fiscal year G4-29 Date of most recent previous report (if any). This report G4-30 Reporting cycle (such as annual, biennial). Annual G4-31 Provide the contact point for questions regarding the report or its contents. info@kpmg.nl G4-32 Report the 'in accordance' option the organisation has chosen. Report the GRI Content Index for the chosen option (see tables below). Comprehensive G4-33 c.Report the organisation's policy and current practice with regard to seeking external assurance for the report. d.If not included in the assurance report accompanying the sustainability report, report the scope and basis of any external assurance provided. e.Report the relationship between the organisation and the assurance providers. f. Report whether the highest governance body or senior executives are involved in seeking assurance for the organisation's sustainability report. 30 Governance G4-34 Report the governance structure of the organisation, including committees of the highest governance body. Identify any committees responsible for decision-making on economic, environmental and social impacts. Chapter 9 G4-35 Report the process for delegating authority for economic, environmental and social topics from the highest governance body to senior executives and other employees. Chapter 9 G4-36 Report whether the organisation has appointed an executive-level position or positions with responsibility Chapter 9 for economic, environmental and social topics, and whether post holders report directly to the highest governance body. G4-37 Report processes for consultation between stakeholders and the highest governance body on economic, Chapter 9 environmental and social topics. If consultation is delegated, describe to whom and any feedback processes to the highest governance body. © 2014 KPMG N.V. All rights reserved. 150 AFC 0.3 AFC 2.1 AFC 2.2 AFC 2.3 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page G4-38 Report the composition of the highest governance body and its committees by: --Executive or non-executive --Independence --Tenure on the governance body --Number of each individual’s other significant positions and commitments, and the nature of the commitments --Gender --Membership of under-represented social groups --Competences relating to economic, environmental and social impacts --Stakeholder representation Chapter 9; 82 G4-39 Report whether the Chair of the highest governance body is also an executive officer (and, if so, his or her Chapter 9 function within the organisation’s management and the reasons for this arrangement). G4-40 Report the nomination and selection processes for the highest governance body and its committees, and Chapter 9 the criteria used for nominating and selecting highest governance body members, including: --Whether and how diversity is considered --Whether and how independence is considered --Whether and how expertise and experience relating to economic, environmental and social topics are considered --Whether and how stakeholders (including shareholders) are involved G4-41 Report processes for the highest governance body to ensure conflicts of interest are avoided and managed. Report whether conflicts of interest are disclosed to stakeholders, including, as a minimum: --Cross-board membership --Cross-shareholding with suppliers and other stakeholders --Existence of controlling shareholder --Related party disclosures Chapter 9 G4-42 Report the highest governance body's and senior executives' roles in the development, approval, and updating of the organisation's purpose, value or mission statements, strategies, policies, and goals related to economic, environmental and social impacts Chapter 9 G4-43 Report the measures taken to develop and enhance the highest governance body's collective knowledge Chapter 9 of economic, environmental and social topics. G4-44 Report the processes for evaluation of the highest governance body's performance with respect to governance of economic, environmental and social topics. Report whether such evaluation is independent or not, and its frequency. Report whether such evaluation is a self-assessment. Report actions taken in response to evaluation of the highest governance body's performance with respect to governance of economic, environmental and social topics, including, as a minimum, changes in membership and organisational practice. © 2014 KPMG N.V. All rights reserved. 151 Chapter 9 Reference AFC 2.1 AFC 2.2 AFC 2.3 AFC 1.2 AFC 2.4 AFC 3.2 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure G4-45 Further explanation Page Reference Report the highest governance body's role in the identification and management of economic, environmental and social impacts, risks, and opportunities. Include the highest governance body's role in the implementation of due diligence processes. Chapter 9; 79-82 AFC 2.3 AFC 2.4 AFC 2.5 AFC 3.2 Report whether stakeholder consultation is used to support the highest governance body’s identification and management of economic, environmental and social impacts, risks, and opportunities. G4-46 Report the highest governance body's role in reviewing the effectiveness of the organisation's risk management processes for economic, environmental and social topics. 79-82 G4-47 Report the frequency of the highest governance body's review of economic, environmental and social impacts, risks, and opportunities. 79-82 G4-48 Report the highest committee or position that formally reviews and approves the organisation's sustainability report and ensures that all material Aspects are covered. 79-82 G4-49 Report the process for communicating critical concerns to the highest governance body. 79-82 G4-50 Report the nature and total number of critical concerns that were communicated to the highest governance body and the mechanism(s) used to address and resolve them. 79-82 G4-51 g.Report the remuneration policies for the highest governance body and senior executives for the below types of remuneration: ››Fixed pay and variable pay: ››Performance-based pay ››Equity-based pay -- Bonuses -- Deferred or vested shares ››Sign-on bonuses or recruitment incentive payments ››Termination payments ››Clawbacks ››Retirement benefits, including the difference between benefit schemes and contribution rates for the highest governance body, senior executives, and all other employees h.Report how performance criteria in the remuneration policy relate to the highest governance body’s and senior executives’ economic, environmental and social objectives. Chapter 9 G4-52 Report the process for determining remuneration. Report whether remuneration consultants are involved 58-60 in determining remuneration and whether they are independent of management. Report any other relationships which the remuneration consultants have with the organisation. G4-53 Report how stakeholders' views are sought and taken into account regarding remuneration, including the results of votes on remuneration policies and proposals, if applicable. © 2014 KPMG N.V. All rights reserved. 152 58-60 Not disclosed AFC 3.4 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference G4-54 Report the ratio of the annual total compensation for the organisation's highest-paid individual in each country of significant operations to the median annual total compensation for all employees (excluding the highest-paid individual) in the same country. The ratio between the average non-equity partner monthly salary and average junior trainee monthly salary is approximately 7:1. G4-55 Report the ratio of percentage increase in annual total compensation for the organisation’s highest-paid individual in each country of significant operations to the median percentage increase in annual total compensation for all employees (excluding the highest-paid individual) in the same country Not disclosed Ethics and Integrity G4-56 Describe the organisation's values, principles, standards and norms of behavior such as codes of conduct 19 and codes of ethics. G4-57 Report the internal and external mechanisms for seeking advice on ethical and lawful behavior, and matters related to organisational integrity, such as helplines or advice lines. 77 G4-58 Report the internal and external mechanisms for reporting concerns about unethical or unlawful behavior, and matters related to organisational integrity, such as escalation through line management, whistleblowing mechanisms or hotlines. 77 AFC 0.1 AFC 0.2 Disclosures on Management Approachby G4-DMA © 2014 KPMG N.V. All rights reserved. i. Report why the Aspect is material. Report the impacts that make this Aspect material. j. Report how the organisation manages the material Aspect or its impacts. k.Report the evaluation of the management approach, including: --The mechanisms for evaluating the effectiveness of the management approach --The results of the evaluation of the management approach --Any related adjustments to the management approach 153 23-30 AFC 1.4 AFC 1.6 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference AFC 3.1 Category Economic Economic Performance G4-EC1 a.Report the direct economic value generated and distributed (EVG&D) on an accruals basis including the basic components for the organisation’s global operations as listed below. If data is presented on a cash basis, report the justification for this decision and report the basic components as listed below: ››Direct economic value generated: ››Revenues ››Economic value distributed: ››Operating costs ››Employee wages and benefits ››Payments to providers of capital ››Payments to government (by country) ››Community investments ››Economic value retained (calculated as ‘Direct economic value generated’ less ‘Economic value distributed’) b.To better assess local economic impacts, report EVG&D separately at country, regional, or market levels, where significant. Report the criteria used for defining significance. Note 2 of the financial statements G4-EC2 Report risks and opportunities posed by climate change that have the potential to generate substantive changes in operations, revenue or expenditure, including: --A description of the risk or opportunity and its classification as either physical, regulatory, or other --A description of the impact associated with the risk or opportunity --The financial implications of the risk or opportunity before action is taken --The methods used to manage the risk or opportunity --The costs of actions taken to manage the risk or opportunity 74-78 G4-EC3 c. Where the plan’s liabilities are met by the organisation’s general resources, report the estimated value of those liabilities. d.Where a separate fund exists to pay the plan’s pension liabilities, report: --The extent to which the scheme’s liabilities are estimated to be covered by the assets that have been set aside to meet them --The basis on which that estimate has been arrived at --When that estimate was made e.Where a fund set up to pay the plan’s pension liabilities is not fully covered, explain the strategy, if any, adopted by the employer to work towards full coverage, and the timescale, if any, by which the employer hopes to achieve full coverage. f. Report the percentage of salary contributed by employee or employer. g.Report the level of participation in retirement plans (such as participation in mandatory or voluntary schemes, regional or country-based schemes, or those with financial impact). Note 4 of the financial statements © 2014 KPMG N.V. All rights reserved. 154 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page h.Report the total monetary value of financial assistance received by the organisation from governments during the reporting period, including, as a minimum: --Tax relief and tax credits --Subsidies --Investment grants, research and development grants, and other relevant types of grants --Awards --Royalty holidays --Financial assistance from Export Credit Agencies (ECAs) --Financial incentives --Other financial benefits received or receivable from any government for any operation i. Report the information above by country. j. Report whether, and the extent to which, the government is present in the shareholding structure. G4-EC4 Reference No assistance received Market Presence G4-EC5 a.When a significant proportion of the workforce is compensated based on wages subject to minimum wage rules, report the ratio of the entry level wage by gender at significant locations of operation to the minimum wage. b.Report whether a local minimum wage is absent or variable at significant locations of operation, by gender. In circumstances in which different minimums could be used as a reference, report which minimum wage is being used. c.Report the definition used for ‘significant locations of operation’. Not applicable G4-EC6 a.Report the percentage of senior management at significant locations of operation that are hired from the local community. b.Report the definition of ‘senior management’ used. c.Report the organisation’s geographical definition of ‘local’. d.Report the definition used for ‘significant locations of operation’. Not applicable Category Environmental Materials G4-EN1 MATERIALS USED BY WEIGHT OR VOLUME Report the total weight or volume of materials that are used to produce and package the organisation's primary products and services during the reporting period, by: --Non-renewable materials used --Renewable materials used Not applicable G4-EN2 PERCENTAGE OF MATERIALS USED THAT ARE RECYCLED INPUT MATERIALS Report the percentage of recycled input materials used to manufacture the organisation's primary products and services. Not applicable © 2014 KPMG N.V. All rights reserved. 155 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference Energy G4-EN3 ENERGY CONSUMPTION WITHIN THE ORGANISATION e.Report total fuel consumption from non-renewable sources in joules or multiples, including fuel types used. f. Report total fuel consumption from renewable fuel sources in joules or multiples, including fuel types used. g.Report in joules, watt-hours or multiples, the total: --Electricity consumption --Heating consumption - Cooling consumption --Steam consumption h.Report in joules, watt-hours or multiples, the total: --Electricity sold --Heating sold - Cooling sold --Steam sold i. Report total energy consumption in joules or multiples. j. Report standards, methodologies, and assumptions used. k.Report the source of the conversion factors used. G4-EN4 ENERGY CONSUMPTION OUTSIDE OF THE ORGANISATION a.Report energy consumed outside of the organisation, in joules or multiples. b.Report standards, methodologies, and assumptions used. c.Report the source of the conversion factors used Not applicable G4-EN5 ENERGY INTENSITY a.Report the energy intensity ratio. b.Report the organisation-specific metric (the ratio denominator) chosen to calculate the ratio. c.Report the types of energy included in the intensity ratio: fuel, electricity, heating, cooling, steam, or all. d.Report whether the ratio uses energy consumed within the organisation, outside of it or both. Not material G4-EN6 REDUCTION OF ENERGY CONSUMPTION a.Report the amount of reductions in energy consumption achieved as a direct result of conservation and 61-63 efficiency initiatives, in joules or multiples. b.Report the types of energy included in the reductions: fuel, electricity, heating, cooling, and steam. c.Report the basis for calculating reductions in energy consumption such as base year or baseline, and the rationale for choosing it. d.Report standards, methodologies, and assumptions used. G4-EN7 REDUCTIONS IN ENERGY REQUIREMENTS OF PRODUCTS AND SERVICES a.Report the reductions in the energy requirements of sold products and services achieved during the reporting period, in joules or multiples. b.Report the basis for calculating reductions in energy consumption such as base year or baseline, and the rationale for choosing it. c.Report standards, methodologies, and assumptions used. Water © 2014 KPMG N.V. All rights reserved. 156 61 Not applicable INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page G4-EN8 TOTAL WATER WITHDRAWAL BY SOURCE a.Report the total volume of water withdrawn from the following sources: --Surface water, including water from wetlands, rivers, lakes, and oceans --Ground water --Rainwater collected directly and stored by the organisation --Waste water from another organisation --Municipal water supplies or other water utilities b.Report standards, methodologies, and assumptions used. 61-63 G4-EN9 WATER SOURCES SIGNIFICANTLY AFFECTED BY WITHDRAWAL OF WATER a.Report the total number of water sources significantly affected by withdrawal by type: --Size of water source --Whether or not the source is designated as a protected area (nationally or internationally) --Biodiversity value (such as species diversity and endemism, total number of protected species) --Value or importance of water source to local communities and indigenous peoples b.Report standards, methodologies, and assumptions used. Not applicable G4-EN10 PERCENTAGE AND TOTAL VOLUME OF WATER RECYCLED AND REUSED a.Report the total volume of water recycled and reused by the organisation. b.Report the total volume of water recycled and reused as a percentage of the total water withdrawal reported under Indicator G4-EN8. c.Report standards, methodologies, and assumptions used. Not applicable Emissions G4-EN15 DIRECT GREENHOUSE GAS (GHG) EMISSIONS (SCOPE 1) © 2014 KPMG N.V. All rights reserved. a.Report gross direct (Scope 1) GHG emissions in metric tons of CO2 equivalent, independent of any 61 GHG trades, such as purchases, sales, or transfers of offsets or allowances. b.Report gases included in the calculation (whether CO2 , CH4, N2O, HFCs, PFCs, SF6, NF3, or all). c.Report biogenic CO2 emissions in metric tons of CO2 equivalent separately from the gross direct (Scope 1) GHG emissions. d.Report the chosen base year, the rationale for choosing the base year, emissions in the base year, and the context for any significant changes in emissions that triggered recalculations of base year emissions. e.Report standards, methodologies, and assumptions used. f. Report the source of the emission factors used and the global warming potential (GWP) rates used or a reference to the GWP source. g.Report the chosen consolidation approach for emissions (equity share, financial control, operational control). 157 Reference INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation G4-EN16 ENERGY INDIRECT GREENHOUSE GAS (GHG) EMISSIONS (SCOPE 2) a.Report gross energy indirect (Scope 2) GHG emissions in metric tons of CO2 equivalent, independent 61 of any GHG trades, such as purchases, sales, or transfers of offsets or allowances. b.Report gases included in the calculation, if available. c.Report the chosen base year, the rationale for choosing the base year, emissions in the base year, and the context for any significant changes in emissions that triggered recalculations of base year emissions. d.Report standards, methodologies, and assumptions used. e.Report the source of the emission factors used and the global warming potential (GWP) rates used or a reference to the GWP source, if available. f. Report the chosen consolidation approach for emissions (equity share, financial control, operational control). G4-EN17 OTHER INDIRECT GREENHOUSE GAS (GHG) EMISSIONS (SCOPE 3) a.Report gross other indirect (Scope 3) GHG emissions in metric tons of CO2 equivalent, excluding 61 indirect emissions from the generation of purchased or acquired electricity, heating, cooling, and steam consumed by the organisation (these indirect emissions are reported in Indicator G4-EN16). Exclude any GHG trades, such as purchases, sales, or transfers of offsets or allowances. b.Report gases included in the calculation, if available. c.Report biogenic CO2 emissions in metric tons of CO2 equivalent separately from the gross other indirect (Scope 3) GHG emissions. d.Report other indirect (Scope 3) emissions categories and activities included in the calculation. e.Report the chosen base year, the rationale for choosing the base year, emissions in the base year, and the context for any significant changes in emissions that triggered recalculations of base year emissions. f. Report standards, methodologies, and assumptions used. g.Report the source of the emission factors used and the global warming potential (GWP) rates used or a reference to the GWP source, if available. G4-EN18 GREENHOUSE GAS (GHG) EMISSIONS INTENSITY h.Report the GHG emissions intensity ratio. i. Report the organisation-specific metric (the ratio denominator) chosen to calculate the ratio. j. Report the types of GHG emissions included in the intensity ratio: direct (Scope 1), energy indirect (Scope 2), other indirect (Scope 3). k.Report gases included in the calculation G4-EN19 REDUCTION OF GREENHOUSE GAS (GHG) EMISSIONS a.Report the amount of GHG emissions reductions achieved as a direct result of initiatives to reduce emissions, in metric tons of CO2 equivalent. b.Report gases included in the calculation (whether CO2 , CH4, N2O, HFCs, PFCs, SF6, NF3, or all). c.Report the chosen base year or baseline and the rationale for choosing it. d.Report standards, methodologies, and assumptions used. e. Report whether the reductions in GHG emissions occurred in direct (Scope 1), energy indirect (Scope 2), other indirect (Scope 3) emissions. G4-EN20 EMISSIONS OF OZONE-DEPLETING SUBSTANCES (ODS) a.Report production, imports, and exports of ODS in metric tons of CFC-11 equivalent. b.Report substances included in the calculation. c.Report standards, methodologies, and assumptions used. d.Report the source of the emission factors used. © 2014 KPMG N.V. All rights reserved. Page 158 Reference Not applicable 61-63 Not applicable INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation G4-EN21 NOX, SOX, AND OTHER SIGNIFICANT AIR EMISSIONS a.Report the amount of significant air emissions, in kilograms or multiples for each of the following: --NOX --SOX --Persistent organic pollutants (POP) --Volatile organic compounds (VOC) -- Hazardous air pollutants (HAP) --Particulate matter (PM) --Other standard categories of air emissions identified in relevant regulations b.Report standards, methodologies, and assumptions used. c.Report the source of the emission factors used. Not applicable G4-EN22 TOTAL WATER DISCHARGE BY QUALITY AND DESTINATION a.Report the total volume of planned and unplanned water discharges by: --Destination --Quality of the water including treatment method --Whether it was reused by another organisation b.Report standards, methodologies, and assumptions used. Not applicable G4-EN23 TOTAL WEIGHT OF WASTE BY TYPE AND DISPOSAL METHOD a.Report the total weight of hazardous and non-hazardous waste, by the following disposal methods: --Reuse --Recycling --Composting --Recovery, including energy recovery --Incineration (mass burn) --Deep well injection --Landfill --On-site storage --Other (to be specified by the organisation) b.Report how the waste disposal method has been determined: --Disposed of directly by the organisation or otherwise directly confirmed --Information provided by the waste disposal contractor --Organisational defaults of the waste disposal contractor G4-EN24 TOTAL NUMBER AND VOLUME OF SIGNIFICANT SPILLS c.Report the total number and total volume of recorded significant spills. d.For spills that were reported in the organisation’s financial statements, report the additional following e.information for each such spill: --Location of spill - Volume of spill --Material of spill, categorised by: -- Oil spills (soil or water surfaces) --Fuel spills (soil or water surfaces) -- Spills of wastes (soil or water surfaces) -- Spills of chemicals (mostly soil or water surfaces) -- Other (to be specified by the organisation) f. Report the impacts of significant spills. © 2014 KPMG N.V. All rights reserved. Page 159 61 Reference Not reported by type as this is considered to be not material for further disclosure Not applicable INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference Effluents and Waste G4-EN25 WEIGHT OF TRANSPORTED, IMPORTED, EXPORTED, OR TREATED WASTE DEEMED HAZARDOUS UNDER THE TERMS OF THE BASEL CONVENTION2 ANNEX I, II, III, AND VIII, AND PERCENTAGE OF TRANSPORTED WASTE SHIPPED INTERNATIONALLY a.Report the total weight for each of the following: --Hazardous waste transported --Hazardous waste imported - Hazardous waste exported --Hazardous waste treated b.Report the percentage of hazardous waste shipped internationally. Not applicable to our professional service firm G4-EN26 IDENTITY, SIZE, PROTECTED STATUS, AND BIODIVERSITY VALUE OF WATER BODIES AND RELATED HABITATS SIGNIFICANTLY AFFECTED BY THE ORGANISATION’S DISCHARGES OF WATER AND RUNOFF Report water bodies and related habitats that are significantly affected by water discharges based on the criteria described in the Compilation section below, adding information on: - Size of water body and related habitat - Whether the water body and related habitat is designated as a protected area (nationally or internationally) - Biodiversity value (such as total number of protected species) Not applicable Products and Services G4-EN27 EXTENT OF IMPACT MITIGATION OF ENVIRONMENTAL IMPACTS OF PRODUCTS AND SERVICES a.Report quantitatively the extent to which environmental impacts of products and services have been mitigated during the reporting period. b.If use-oriented figures are employed, report the underlying assumptions regarding consumption patterns or normalization factors. Not applicable G4-EN28 PERCENTAGE OF PRODUCTS SOLD AND THEIR PACKAGING MATERIALS THAT ARE RECLAIMED BY CATEGORY Report the percentage of reclaimed products and their packaging materials for each product category. b. Report how the data for this Indicator has been collected. Not applicable Compliance G4-EN29 MONETARY VALUE OF SIGNIFICANT FINES AND TOTAL NUMBER OF NON-MONETARY SANCTIONS FOR NON-COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS © 2014 KPMG N.V. All rights reserved. a.Report significant fines and non-monetary sanctions in terms of: --Total monetary value of significant fines --Total number of non-monetary sanctions --Cases brought through dispute resolution mechanisms b.Where organisations have not identified any non-compliance with laws or regulations, a brief statement of this fact is sufficient. 160 No material fines INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference 61 Not applicable Transport G4-EN30 SIGNIFICANT ENVIRONMENTAL IMPACTS OF TRANSPORTING PRODUCTS AND OTHER GOODS AND MATERIALS FOR THE ORGANISATION’S OPERATIONS, AND TRANSPORTING MEMBERS OF THE WORKFORCE a.Report the significant environmental impacts of transporting products and other goods and materials for the organisation’s operations, and transporting members of the workforce. Where quantitative data is not provided, report the reason. b.Report how the environmental impacts of transporting products, members of the organisation’s workforce, and other goods and materials are mitigated. c.Report the criteria and methodology used to determine which environmental impacts are significant. Overall G4-EN31 TOTAL ENVIRONMENTAL PROTECTION EXPENDITURES AND INVESTMENTS BY TYPE d.Report total environmental protection expenditures by: --Waste disposal, emissions treatment, and remediation costs --Prevention and environmental management costs Not applicable Environmental Grievance Mechanisms G4-EN34 NUMBER OF GRIEVANCES ABOUT ENVIRONMENTAL IMPACTS FILED, ADDRESSED, AND RESOLVED THROUGH FORMAL GRIEVANCE MECHANISMS a.Report the total number of grievances about environmental impacts filed through formal grievance mechanisms during the reporting period. b.Of the identified grievances, report how many were: --Addressed during the reporting period --Resolved during the reporting period c. Report the total number of grievances about environmental impacts filed prior to the reporting period that were resolved during the reporting period. Not applicable Category Social Labor Pratices and Decent Work Employment G4-LA1 TOTAL NUMBER AND RATES OF NEW EMPLOYEE HIRES AND EMPLOYEE TURNOVER BY AGE GROUP, GENDER AND REGION © 2014 KPMG N.V. All rights reserved. a.Report the total number and rate of new employee hires during the reporting period, by age group, gender and region. b.Report the total number and rate of employee turnover during the reporting period, by age group, gender and region. 161 48 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference G4-LA2 BENEFITS PROVIDED TO FULLTIME EMPLOYEES THAT ARE NOT PROVIDED TO TEMPORARY OR PARTTIME EMPLOYEES, BY SIGNIFICANT LOCATIONS OF OPERATION a.Report the benefits which are standard for full-time employees of the organisation but are not provided to temporary or part-time employees, by significant locations of operation. These include, as a minimum: --Life insurance --Health care --Disability and invalidity coverage --Parental leave --Retirement provision --Stock ownership --Others b.Report the definition used for ‘significant locations of operation’. 0%. Type of benefits are equal to all employees. G4-LA3 RETURN TO WORK AND RETENTION RATES AFTER PARENTAL LEAVE, BY GENDER a.Report the total number of employees that were entitled to parental leave, by gender. Report the total number of employees that took parental leave, by gender. b.Report the total number of employees who returned to work after parental leave ended, by gender. c.Report the total number of employees who returned to work after parental leave ended who were still employed twelve months after their return to work, by gender. e. Report the return to work and retention rates of employees who took parental leave, by gender. Not material Labor/Management Relations G4-LA4 MINIMUM NOTICE PERIODS REGARDING OPERATIONAL CHANGES, INCLUDING WHETHER THESE ARE SPECIFIED IN COLLECTIVE AGREEMENTS a.Report the minimum number of weeks’ notice typically provided to employees and their elected representatives prior to the implementation of significant operational changes that could substantially affect them. b.For organisations with collective bargaining agreements, report whether the notice period and provisions for consultation and negotiation are specified in collective agreements. Termination by KPMG: <5 yr: 1 month; 5-10 yr: 2 months; 10-15 yr: 3 months; >15 yr: 4 months. Exceptions may apply. Termination by employees: 1-3 months depending on functional level Training and Education G4-LA9 AVERAGE HOURS OF TRAINING PER YEAR PER EMPLOYEE BY GENDER, AND BY EMPLOYEE CATEGORY © 2014 KPMG N.V. All rights reserved. Report the average hours of training that the organisation’s employees have undertaken during the reporting period, by: --Gender --Employee category 162 49 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation G4-LA10 PROGRAMMES FOR SKILLS MANAGEMENT AND LIFELONG LEARNING THAT SUPPORT THE CONTINUED EMPLOYABILITY OF EMPLOYEES AND ASSIST THEM IN MANAGING CAREER ENDINGS a.Report on the type and scope of programmes implemented and assistance provided to upgrade employee skills. b.Report on the transition assistance programmes provided to facilitate continued employability and the management of career endings resulting from retirement or termination of employment G4-LA11 PERCENTAGE OF EMPLOYEES RECEIVING REGULAR PERFORMANCE AND CAREER DEVELOPMENT REVIEWS, BY GENDER AND BY EMPLOYEE CATEGORY Report the percentage of total employees by gender and by employee category who received a regular performance and career development review during the reporting period Page Reference 14;82 Not all aspects reported as these are deemed not material for detailed disclosure. Diversity and Equal Opportunity G4-LA12 COMPOSITION OF GOVERNANCE BODIES AND BREAKDOWN OF EMPLOYEES PER EMPLOYEE CATEGORY ACCORDING TO GENDER, AGE GROUP, MINORITY GROUP MEMBERSHIP, AND OTHER INDICATORS OF DIVERSITY a.Report the percentage of individuals within the organisation’s governance bodies in each of the following diversity categories: --Gender --Age group: under 30 years old, 30-50 years old, over 50 years old --Minority groups --Other indicators of diversity where relevant b.Report the percentage of employees per employee category in each of the following diversity categories: --Gender --Age group: under 30 years old, 30-50 years old, over 50 years old --Minority groups --Other indicators of diversity where relevant Equal Remuneration for Women and Men G4-LA13 RATIO OF BASIC SALARY AND REMUNERATION OF WOMEN TO MEN BY EMPLOYEE CATEGORY, BY SIGNIFICANT LOCATIONS OF OPERATION a.Report the ratio of the basic salary and remuneration of women to men for each employee category, by 49 significant locations of operation. b.Report the definition used for ‘significant locations of operation’. Labor Pactices Grievance Mechanisms G4-LA16 NUMBER OF GRIEVANCES ABOUT LABOR PRACTICES FILED, ADDRESSED, AND RESOLVED THROUGH FORMAL GRIEVANCE MECHANISMS © 2014 KPMG N.V. All rights reserved. a.Report the total number of grievances about labor practices filed through formal grievance mechanisms during the reporting period. b.Of the identified grievances, report how many were: --Addressed during the reporting period --Resolved during the reporting period c.Report the total number of grievances about labor practices filed prior to the reporting period that were resolved during the reporting period. 163 Not applicable INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference Society Local Communities G4-SO1 PERCENTAGE OF OPERATIONS WITH IMPLEMENTED LOCAL COMMUNITY ENGAGEMENT, IMPACT ASSESSMENTS, AND DEVELOPMENT PROGRAMMES Report the percentage of operations with implemented local community engagement, impact assessments, and development programmes, including the use of: --Social impact assessments, including gender impact assessments, based on participatory processes --Environmental impact assessments and ongoing monitoring --Public disclosure of results of environmental and social impact assessments --Local community development programmes based on local communities’ needs Not applicable --Stakeholder engagement plans based on stakeholder mapping --Broad based local community consultation committees and processes that include vulnerable groups --Works councils, occupational health and safety committees and other employee representation bodies to deal with impacts --Formal local community grievance processes G4-SO2 OPERATIONS WITH SIGNIFICANT ACTUAL AND POTENTIAL NEGATIVE IMPACTS ON LOCAL COMMUNITIES Report operations with significant actual and potential negative impacts on local communities, including: --The location of the operations --The significant actual and potential negative impacts of operations 5-13 Anti-Corruption G4-SO3 TOTAL NUMBER AND PERCENTAGE OF OPERATIONS ASSESSED FOR RISKS RELATED TO CORRUPTION AND THE SIGNIFICANT RISKS IDENTIFIED d.Report the total number and percentage of operations assessed for risks related to corruption. e.Report the significant risks related to corruption identified through the risk assessment. G4-SO4 COMMUNICATION AND TRAINING ON ANTI-CORRUPTION POLICIES AND PROCEDURES a.Report the total number and percentage of governance body members that the organisation’s anticorruption policies and procedures have been communicated to, broken down by region. b.Report the total number and percentage of employees that the organisation’s anti-corruption policies and procedures have been communicated to, broken down by employee category and region. c.Report the total number and percentage of business partners that the organisation’s anti-corruption policies and procedures have been communicated to, broken down by type of business partner and region. d. Report the total number and percentage of governance body members that have received training on anti- corruption, broken down by region. e.Report the total number and percentage of employees that have received training on anti-corruption, broken down by employee category and region. © 2014 KPMG N.V. All rights reserved. 164 75-78 100% 100% INTEGRATED REPORT 2013/2014 GRI Disclosure table G4-SO5 Disclosure Further explanation Page CONFIRMED INCIDENTS OF CORRUPTION AND ACTIONS TAKEN a.Report the total number and nature of confirmed incidents of corruption. b. Report the total number of confirmed incidents in which employees were dismissed or disciplined for corruption. c.Report the total number of confirmed incidents when contracts with business partners were terminated or not renewed due to violations related to corruption. d.Report public legal cases regarding corruption brought against the organisation or its employees during the reporting period and the outcomes of such cases Reference Public Policy G4-SO6 TOTAL VALUE OF POLITICAL CONTRIBUTIONS BY COUNTRY AND RECIPIENT/BENEFICIARY a.Report the total monetary value of financial and in-kind political contributions made directly and indirectly by the organisation by country and recipient/beneficiary. b.Report how the monetary value of in-kind contributions was estimated, if applicable. None made Anti-competitive Behaviour G4-SO7 TOTAL NUMBER OF LEGAL ACTIONS FOR ANTI-COMPETITIVE BEHAVIOR, ANTI-TRUST, AND MONOPOLY PRACTICES AND THEIR OUTCOMES a.Report the total number of legal actions pending or completed during the reporting period regarding anti- competitive behavior and violations of anti-trust and monopoly legislation in which the organisation has been identified as a participant. b.Report the main outcomes of completed legal actions, including any decisions or judgments. None Compliance G4-SO8 MONETARY VALUE OF SIGNIFICANT FINES AND TOTAL NUMBER OF NON-MONETARY SANCTIONS FOR NON-COMPLIANCE WITH LAWS AND REGULATIONS c.Report significant fines and non-monetary sanctions in terms of: --Total monetary value of significant fines --Total number of non-monetary sanctions --Cases brought through dispute resolution mechanisms d.If the organisation has not identified any non-compliance with laws or regulations, a brief statement of this fact is sufficient. e. Report the context against which significant fines and non-monetary sanctions were incurred. 56-58 Grievance Mechanisms for Impacts on Society G4-S11 NUMBER OF GRIEVANCES ABOUT IMPACTS ON SOCIETY FILED, ADDRESSED, AND RESOLVED THROUGH FORMAL GRIEVANCE MECHANISMS © 2014 KPMG N.V. All rights reserved. a.Report the total number of grievances about impacts on society filed through formal grievance mechanisms during the reporting period. b.Of the identified grievances, report how many were: --Addressed during the reporting period --Resolved during the reporting period c.Report the total number of grievances about impacts on society filed prior to the reporting period that were resolved during the reporting period. 165 55-57 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference Product Responsibility Customer Health and Safety G4-PR1 PERCENTAGE OF SIGNIFICANT PRODUCT AND SERVICE CATEGORIES FOR WHICH HEALTH AND SAFETY IMPACTS ARE ASSESSED FOR IMPROVEMENT Report the percentage of significant product and service categories for which health and safety impacts are assessed for improvement. G4-PR2 TOTAL NUMBER OF INCIDENTS OF NON-COMPLIANCE WITH REGULATIONS AND VOLUNTARY CODES CONCERNING THE HEALTH AND SAFETY IMPACTS OF PRODUCTS AND SERVICES DURING THEIR LIFE CYCLE, BY TYPE OF OUTCOMES a.Report the total number of incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and services within the reporting period, by: --Incidents of non-compliance with regulations resulting in a fine or penalty --Incidents of non-compliance with regulations resulting in a warning --Incidents of non-compliance with voluntary codes b.If the organisation has not identified any non-compliance with regulations and voluntary codes, a brief statement of this fact is sufficient. Not applicable 43 Product and Service Labeling G4-PR3 TYPE OF PRODUCT AND SERVICE INFORMATION REQUIRED BY THE ORGANISATION’S PROCEDURES FOR PRODUCT AND SERVICE INFORMATION AND LABELING, AND PERCENTAGE OF SIGNIFICANT PRODUCT AND SERVICE CATEGORIES SUBJECT TO SUCH INFORMATION REQUIREMENTS a.Report whether the following product and service information is required by the organisation’s procedures for product and service information and labeling: --The sourcing of components of the product or service --Content, particularly with regard to substances that might produce an environmental or social impact --Safe use of the product or service --Disposal of the product and environmental/social impacts --Other (explain) b.Report the percentage of significant product or service categories covered by and assessed for compliance with such procedures. 32-34 QPR results G4-PR4 TOTAL NUMBER OF INCIDENTS OF NON-COMPLIANCE WITH REGULATIONS AND VOLUNTARY CODES CONCERNING PRODUCT AND SERVICE INFORMATION AND LABELING, BY TYPE OF OUTCOMES a.Report the total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labeling, by: --Incidents of non-compliance with regulations resulting in a fine or penalty --Incidents of non-compliance with regulations resulting in a warning --Incidents of non-compliance with voluntary codes b.If the organisation has not identified any non-compliance with regulations and voluntary codes, a brief statement of this fact is sufficient. 42-34; 43 QPR results Notifications to AFM: 11 (FY 12/13: 9). G4-PR5 RESULTS OF SURVEYS MEASURING CUSTOMER SATISFACTION Report the results or key conclusions of customer satisfaction surveys (based on statistically relevant sample sizes) conducted in the reporting period relating to information about: --The organisation as a whole --A major product or service category --Significant locations of operation 53 © 2014 KPMG N.V. All rights reserved. 166 INTEGRATED REPORT 2013/2014 GRI Disclosure table Disclosure Further explanation Page Reference Marketing Communications G4-PR6 SALE OF BANNED OR DISPUTED PRODUCTS c.Report whether the organisation sells products that are: --Banned in certain markets -- The subject of stakeholder questions or public debate d.Report how the organisation has responded to questions or concerns regarding these products. G4-PR7 TOTAL NUMBER OF INCIDENTS OF NON-COMPLIANCE WITH REGULATIONS AND VOLUNTARY CODES CONCERNING MARKETING COMMUNICATIONS, INCLUDING ADVERTISING, PROMOTION, AND SPONSORSHIP, BY TYPE OF OUTCOMES a.Report the total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship, by: --Incidents of non-compliance with regulations resulting in a fine or penalty --Incidents of non-compliance with regulations resulting in a warning --Incidents of non-compliance with voluntary codes b.If the organisation has not identified any non-compliance with regulations and voluntary codes, a brief statement of this fact is sufficient. Not applicable 43 AFC 3.2 Customer Privacy G4-PR8 TOTAL NUMBER OF SUBSTANTIATED COMPLAINTS REGARDING BREACHES OF CUSTOMER PRIVACY AND LOSSES OF CUSTOMER DATA a.Report the total number of substantiated complaints received concerning breaches of customer privacy, categorised by: --Complaints received from outside parties and substantiated by the organisation --Complaints from regulatory bodies b.Report the total number of identified leaks, thefts, or losses of customer data. c. If the organisation has not identified any substantiated complaints, a brief statement of this fact is sufficient. 5-13; 43 Compliance G4-PR9 MONETARY VALUE OF SIGNIFICANT FINES FOR NON-COMPLIANCE WITH LAWS AND REGULATIONS CONCERNING THE PROVISION AND USE OF PRODUCTS AND SERVICES © 2014 KPMG N.V. All rights reserved. a.Report the total monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services. b.If the organisation has not identified any non-compliance with laws or regulations, a brief statement of this fact is sufficient. 167 Civil proceedings: 1 Disciplinary proceedings: 7 Administrative proceedings: / INTEGRATED REPORT 2013/2014 Glossary Abbreviation Explanation Abbreviation Explanation Abbreviation Explanation AFC Audit Firm Code (‘Code Accountantsorganisatie’) GDI Global Development Initiative PHL -IDC GRI Global Reporting Initiative Public Health Laboratory Ivo de Carneri AFM Autoriteit Financiële Markten GSI Global Service Centre PIE/OOB Bta Besluit toezicht accountantsorganisaties or the Degree to the Dutch Supervision Act on Audit Firms HR Human Resources Public Interest Entities/Organisaties van Openbaar Belang IAB International Accounting Bulletin PIN Performance Improvement Necessary ICF Issue Communication Form QPR IESBA Conseil Européen pour la Recherche Nucléaire or European Organisation for Nuclear Research International Ethics Standards Board for Accountants Quality Performance Reviews or the internal inspections of engagements to assess compliance with professional standards, including quality IFAC International Federation of Accountants QRMG Quality & Risk Management Group IFRS International Financial Reporting Standards RCP CPE Continuous Professional Education ISA International Standards on Auditing CO Compliance Officer ISG International Standards Group CSM Corporate Security Manager ISO CSR Corporate Social Responsibility International Organisation for Standardisation Risk Compliance Programme or the internal inspections on compliance with the Firm’s risk management and independence procedures SEC Securities and Exchange Commission CY Calendar Year KAM KPMG Audit Manual SP Strong Performance DEFRA Department of Environment, Food and Rural Affairs KICS KPMG Independence Compliance System SP- Inconsistent Performance MDG Millennium Development Goals SP+ Highly Effective Performance ELLP Europe Limited Liability Partnership MVP Millennium Villages Project VEB EP Excellent Performance NBA EQCR Engagement Quality Control Review Netherlands Professional Association of Accountants Vereniging voor Effectenbezitters or Dutch Association of Shareholders WAO EQCRP Engagement Quality Control Review Partner NGO Non-governmental organisation Wet op de Arbeidsongeschiktheids­ verzekering or Occupational Disability Insurance Act EQC(R) Engagement Quality Control (Review) NI Needs Improvement WEP Women’s Empowerment Principles Full time equivalent NITSO National IT Security Office Wta FY Fiscal year PCAOB Public Company Accounting Oversight Board GCR Global Compliance Review PHAC Publicly Held Audit Clients Wet toezicht accountantsorganisaties or the Dutch Supervision Act on Audit Firms CEAC CERN FTE Client and Engagement Acceptance and Continuation © 2014 KPMG N.V. All rights reserved. 168 Contact us info@kpmg.nl kpmg.nl The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG N.V., registered with the trade register in the Netherlands under number 34153857, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. The name KPMG, logo and ‘cutting through complexity’ are registered trademarks of KPMG International.