Plugin-Ellp Ara 2010 Final Combined LR

KPMG EuroPE LLP
Annual Report 2010
Contents Chairmens statement. page 2. Chief operating officers review. page 6. Managing our Business. page 10. Business review & marketplace. page 12. Audit. page 14. Tax . page 15. Performance & Technology. page 16. Risk & Compliance. page 17. Transactions & Restructuring. page 18. Markets Industries. page 19. National markets. page 30. People. page 40. Corporate Social Responsibility. page 44. Corporate governance. page 48. Board members. page 52. report to the members. page 54. Auditors report. page 57. Financial statements. page 58.
KPMG Europe LLP | Annual report 2010 | 1
Introduction.
As the KPMG Europe LLP group grows we are determined to find new ways to use our skills and capabilities to help our clients cut through the complex challenges they face. The value we bring lies not just in our scale, but in our ability to draw on an exceptional breadth and depth of expertise for the benefit of our clients.
Experience KPMG online www.kpmg.eu/annualreport
uring the year the KPMG Europe LLP group comprised interests in the KPMG firms in Belgium, Russia and D the Commonwealth of Independent States (CIS), Germany, Luxembourg, the Netherlands, Spain, Switzerland, Turkey and the UK (see note 27), and it is through those firms that client services are delivered. These interests are referred to as the legal group. Where specified, figures quoted in the review sections of this annual report may refer to proforma data for the entities covered by these interests, as if this structure had been in place throughout 2009 and 2010, and ignoring the impact of exchange rate fluctuations. Further KPMG operations and entities in these countries, whilst not controlled by KPMG Europe LLP within the meaning of the relevant Accounting Standard, operate under the same principles as the legal group and these entities together with the legal group are referred to as ELLP firms.
2 | KPMG Europe LLP | Annual Report 2010
KPMG Europe LLP Chairmens statement.
John Griffith-Jones Joint Chairman Rolf Nonnenmacher Joint Chairman
After three years of rapid expansion, the KPMG member firms in Europe are working successfully across disciplines to help our clients navigate an increasingly complex world.
High Growth Focus. Financial Services. Healthcare. Government & Infrastructure. Energy & Natural Resources. Communications & Media. Performance & Technology. Tax Globalisation. China. Emerging Markets.
There is a strong unity of purpose evident at every level of KPMG Europe LLP today. Our partners conference in Frankfurt in June symbolised this well, giving us the opportunity to take stock of the progress we have made building truly collaborative working. Increasingly, as planned, it shines through in the work we are doing for both our global and our national market clients. In an extremely tough economic environment, our clients have been supported through difficult times by the significant resilience, imagination and skill of our people. The results we have achieved across the ELLP firms, though inevitably affected by the state of our markets, are a tribute to their extraordinary talent. There is much more to be done, of course. But it gives us both great confidence to know that we have come so far, so quickly and that we can see that our commitment to provide outstanding quality of service to our clients is more relentless than ever.
Thriving in a complex world. The combined KPMG Europe LLP now comprises interests in ELLP firms in Germany, the UK, Switzerland, Spain, the Netherlands, Belgium, Luxembourg, Turkey and six CIS countries, including Russia. In October 2010 we were delighted that Norway and Saudi Arabia agreed to join ELLP. The organisation will now span 16 countries, employing 30,000 people. The key to our success lies in how we marshal our collective resources to meet the fast changing needs of our clients. That is especially important at a time of continuing short-term economic uncertainty. It is all the more crucial when our clients, like us, are adjusting to much deeper, permanent changes in the global economy. We have emerged from the financial crisis and the deepest downturn for 60 years into a new and less comfortable world. The economic and cultural environment is more diverse and many of the old certainties we once depended on have disappeared. Life is more complex; but it is also immeasurably more interesting.
In our view, business success is less easy to achieve today. But we share a belief with many of our clients that world-class companies can thrive in this new environment. The new KPMG global brand position cutting through complexity neatly summarises the vital role we are playing in helping client organisations find efficient and effective ways to sustain their growth and prosperity in a complex world. A strategy for growth. During the year we undertook a fundamental review of our strategy, at global and regional level, to position ourselves for success in a rapidly changing world. We have identified nine areas for particular focus (see box above). These cover a range of industry sectors where we expect to see fundamental change, service areas where we anticipate growing client needs, and geographic focus to recognise that China and the Emerging markets will play an increasingly pivotal role in the global economy. our ELLP structure puts us in a strong position to implement these plans vigorously and consistently.
KPMG Europe LLP Chairmens statement continued

An ambitious business plan. The strategy is supported by an ambitious business plan for the KPMG Europe LLP group which will involve significant investment over the next three years, as Richard Bennison explains in his Chief operating officers report. We are eager to increase our collective share of the audit market. Growth here always takes patience; our established long track record of high quality performance while servicing a diverse range of clients is helping us to achieve this. Equally we see big opportunities for our Tax practice, an area of growing, global complexity where our clients are looking for a more specialised level of advice and support. We also see more immediate opportunities to grow our advisory businesses. We have recruited a large number of talented people from outside KPMG this year to boost our capabilities and each ELLP firm is now actively looking to grow organically and through acquisitions. Clients and people. Ultimately these plans are all about our clients. We talked last year about building an intensely client-centric organisation. That goal remains right at the top of our agenda. We are concentrating on managing our key global accounts to bring these clients more of our ideas, skills and services. We are also maintaining a very strong local presence with clients operating in our national markets. But enhancing our client service depends on the people we employ and on building a high performance culture within which they can excel. They are absolutely critical to the collective success of our business and to our clients success. Mobility is vital. We are making sure our people can move quickly across our markets to be available to clients whenever they are needed. It is excellent to see that more than 200 people were on secondment between ELLP firms during the year and another 500 plus were involved in international transfers. Developing the client service skills of our people, at every level, is another key focus. As our people progress, we want them to feel comfortable to act as trusted strategic advisers to our clients, bringing them the benefit of all our capabilities. Competition across the global economy is increasing all the time. India, China and other fast growing economies are determined to challenge the old economic power base. our skills remain our chief competitive advantage and we need to bring them to the global market place more efficiently and in a way that offers our clients ever more value. It is a challenge we need to rise to and we are doing so admirably.
We are confident that the ELLP firms, connected across geographies and sectors, can really make a difference to clients as they confront these challenges.
Quality. The regulatory landscape is growing more complex. National governments have moved from understanding what caused the financial crisis to working out how they can improve the system to make sure it does not happen again. A substantial amount of new regulation is in prospect in financial services, and risk is rising to the top of board agendas in almost every sector. While the audit profession was certainly not the cause of the crisis, its future role is being hotly debated. Some have openly questioned whether auditors bring enough scepticism to the role. We think this is a reasonable challenge and one that, ironically, only underlines the importance of the audit. We certainly agree that, to be of real value, an audit must be conducted with a sceptical and questioning mind. Above all, the quality of our collective Audit practices and our audit partners across ELLP firms remains our single most important strategic priority. Much attention in Europe is focused on the European Commissions Green Paper on the future of auditing, led by the internal markets Commissioner, Michel Barnier. We are particularly interested in one area of the debate whether there is a place for some form of wider risk reporting alongside, or in addition to, the audit report.
As auditors, we are better placed than most to provide assurance on the wider set of risks faced by a business including those that are more forward-looking. We are eager to take on that role. We are also strengthening our own Governance procedures. In response to recommendations from the ICAEWs Audit Firm Governance Working Group we have set up a Public Interest Committee our equivalent of a panel of non-executive directors. Sir Steve Robson, Tom De Swaan and Dr. Alfred Tacke have agreed to take on that role and we look forward to receiving their advice and guidance as we move our group forward. We would also like to take this opportunity to thank those Board members who have retired this year for their invaluable contribution and to welcome our new members. Outlook. We could not have faced a more challenging economic backdrop to the first three years since the formation of KPMG Europe LLP. We are both immensely proud of the work people across the group have done to enable us to make such significant progress in this economic environment. 2011 is likely to be another year of gradual, and probably uneven, recovery for the global economy. Our clients will need to continue to focus on improving their financial, risk and operating processes to prepare themselves for better times. Many of our clients will be in a position to grow.
We are confident that the ELLP firms, connected across geographies and sectors, can really make a difference to clients as they confront these challenges. Our new branding sends out a strong message to them. It emphasises the fact that while our values as a business remain the same the support we provide to our clients is now sharper, more focused, more useful and increasingly valuable. It also says that, despite the immediate economic challenges the world continues to face, we see many good reasons to be optimistic. Finally, we would like to thank all our clients for the trust they place in us and all our talented people for their unstinting passion in helping our clients excel.
John Griffith-Jones. Joint Chairman Rolf Nonnenmacher. Joint Chairman
KPMG Europe LLP Chief Operating Officers review.
Richard Bennison Chief operating officer
2010 was a year of substantial achievement for KPMG Europe LLP, and we now have a base for significant future growth. But securing that growth means we must continue to prove, day in and day out, that we are relevant to our clients needs more in touch with their challenges and better equipped than anyone else to help them succeed.
4,065m
2010 revenues
We have experienced significant expansion and huge change in the three years since KPMG Europe LLP was formed. The benefits of the combined group continue to grow and the expansion gives us even greater ability to invest to meet changing client needs. We have begun to demonstrate how powerful an impact we can have when we mobilise our people, our resources and our capabilities across borders to help our clients overcome the complex challenges they face. The power of this co-working is most clear in the excellent work we have done for our global and national market clients, as I hope this report demonstrates. Our ability to draw on a rich diversity of skills and talent from across the ELLP firms to put the right teams to work at the right time explains why we won some of our most exciting international assignments during the year, including at ING and Norilsk Nickel.
Our people are increasingly comfortable working closely together across borders. There is a real readiness to share insights, experience and expertise for the benefit of our clients. This type of deep collaboration has now become a way of life for us. At a time when businesses are becoming more global, capital markets are converging, regulation is becoming more complex, and economic power is shifting rapidly from west to east, our ability to make those connections irrespective of national borders sets us apart in the marketplace and will increasingly underpin our collective growth. Throughout all these changes quality remains uppermost in our minds. Our system of quality controls is designed to meet the expectations of our clients as well as the rules and standards issued by national regulators and professional institutions. It encompasses: leadership responsibility for quality high ethical standards strong people management igorous procedures for acceptance r and continuance of client relationships and engagements rocesses which deliver effective p engagement performance; and monitoring activities.
High performance in a volatile market. The groups reported revenue of 4,065 million was up 16% compared to the prior year, as new member firms in the Netherlands, CIS and Luxembourg joined the group. On a proforma basis, which treats all countries as having been in the group throughout both years, revenues fell by 3% (to 4.3 billion). The marketplace for our clients and our firms remained uncertain in 2010. For many of our corporate clients it was a case of concentrating on the basics to improve performance, efficiency and cash and cost control. With our help, many are well placed to take advantage of opportunities as the recovery gathers pace. In financial services, unprecedented regulatory change and the need to build more resilient capital structures resulted in demand from banks, insurers and investment houses for our help. We responded quickly, bringing together our specialists in key markets such as Germany, the UK, Spain, Luxembourg, Switzerland and the Netherlands, to guide and support our clients. ENR was buoyant and we won major assignments in this sector, such as guiding uC RUSAL in its landmark US$2.2 billion Hong Kong listing (the first of its kind for a Russian business) and our continued work with LUKOIL, Russias biggest oil company.
KPMG Europe LLP Chief Operating Officers review continued We have a strong presence across all the countries in which the ELLP firms operate and a broad range of expertise on the complex issues our clients face.
It was a tough environment for our public sector practice, especially in those countries where governments introduced austerity measures to tackle soaring national deficits. Nevertheless, we continued to provide high quality advice and services to assist governments in achieving their strategic objectives. Our Advisory Services grew overall, driven by our increased capability and relevance to our clients, though the three Advisory groups fared differently. Overall growth was driven by the very strong growth of our Performance & Technology practice (+17%). With M&A markets still relatively flat, our Transactions & Restructuring practice focused on providing clients with through the cycle advice, drawing on our substantial sector knowledge to help them to prepare for growth. Revenues fell by 4%, a good performance considering the limited transaction activity. After a slow start to the year our Risk & Compliance practice saw business pick up strongly in the second half of the year to end with revenues down 8%. Pricing pressure caused audit revenues to fall by 7%, but we were encouraged by the winning of new prestigious audit mandates in a very competitive environment. We won important new assignments, including Capita in the UK, ABN Amro in the Netherlands and EnBW in Germany. In response to client demands we have also developed a wider range of assurance services, in areas such as sustainability reporting and internal revenue controls. We expect this to drive additional opportunities to add value to clients. Our Tax practice performed well as we put more of our resources into providing class-leading advice on pensions, international tax structuring, transfer pricing and the management of indirect taxes. The lack of transactions impacted our performance, leading to a 2% overall fall in revenues. Priorities for growth. The new global growth strategy for KPMG has also galvanised our thinking on how we can better serve our clients and offer our people greater opportunity. Our ambition is to help both excel. our growth priorities in KPMG Europe LLP are fully aligned with the priorities of KPMG firms globally. The dominance of oil, gas, minerals and metals in some of the markets served by the ELLP firms means we have a remarkable opportunity to combine our sector knowledge and experience in the CIS, the UK and the Netherlands to help clients overcome global challenges. With Norway and Saudi Arabia joining KPMG ELLP, the case for giving ENR prominence is all the more compelling. Both countries are rich in natural resources and have powerful sovereign wealth funds, which are increasingly important to international investors. The more we integrate as a firm the less we need to replicate services in every market. We are therefore building centres of excellence from which we can deploy our best resources quickly. We will be driving the ENR growth opportunity from our newly established centre of excellence in Moscow. Likewise, to support the growth strategy, we have established a centre of excellence for financial services risk and regulation in London.
The new global growth strategy for KPMG has also galvanised our thinking on how we can better serve our clients and offer our people greater opportunity.
Ambitious growth plan. There is no room for complacency, however. Growth will only come if we prove ourselves to be more and more relevant to our clients. We are confident we can do this, and planning for the next three years is based on building the capabilities we will need to meet growing demand from our clients. We expect to increase our headcount of client-facing staff within ELLP firms from 23,000 today (total staff 30,000) to more than 32,500 in 2013. Achieving that, when competition for talent is so intense, will be a challenge. It is vital we provide our people with a winning culture within which they can really flourish. Our organic growth will be supplemented by bringing new capabilities into KPMG, particularly in the Performance & Technology and Risk & Compliance practice areas. We have already made small acquisitions in the technology service area and recruited a new portfolio solutions group. We expect more to follow as the consulting market consolidates. We have a strong presence across all the countries in which the ELLP firms operate and a broad range of expertise on the complex issues our clients face, whether that is optimising business model design, integrating new acquisitions, disposing of non-core assets or designing efficient back office functions.
Looking ahead. The next year will not be easy. There are still concerns over the future of the European and global economies. Nevertheless, our unstinting focus on providing high-quality services and our determination to find and develop the most talented people to help our clients succeed, irrespective of where they are located, will mean that there is no shortage of opportunities for us. I am confident that in 12 months time more of our existing clients will be benefitting from this approach and that we will be working with new clients, including many of the leaders in the sectors we are prioritising.
Richard Bennison. Chief operating officer
KPMG Europe LLP Managing Our Business.
Our primary purpose in creating KPMG ELLP is to provide real benefits for our firms clients, large and small.
Our goal is to ensure that, in fast changing economic conditions, we provide clients with world class insights into how to tackle the challenges they face and seamless access to the full range of expertise we have across KPMG, in ELLP and globally. To achieve this we manage the business across three dimensions our functional expertise, our client markets and our country communities. Our functions. Our functions develop world class expertise to help clients meet existing challenges and develop new propositions to help them tackle emerging issues coping with sustainability concerns, for example, or dealing with new technologies like cloud computing. Managing our functional experts on an ELLP wide basis has given clients improved access to resources. These experts could be based in their own country or in one of our ELLP centres of excellence.
We simplified our functional structure during the year to streamline management and join up complementary skills. For instance, combining our transactions capability and our restructuring expertise has allowed us to offer clients additional insights as they manoeuvre through the different phases of the business cycle. We now operate five functions Audit, Tax, Performance & Technology, Risk & Compliance and Transactions & Restructuring. Their achievements during the last year are covered in the business review section of this annual report. Our client markets. We manage the relationship with our firms largest clients at European industry sector level. This enables us to develop deep understanding of these large complex organisations and provide them with sector insights and solutions that meet their specific situations. our sector communities allow us to pool an extensive range of experience across different geographies and make this available to all clients, whatever their size and position in, usually, complex supply chains. We manage our interactions with medium size clients on a sector basis at country level and our relationships with smaller clients by country region. These vibrant entrepreneurial organisations need a broad range of business advice from people located in the same city or region and the ELLP firms serve them through our extensive network of National Market offices.
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Our countries. The third dimension of our operating matrix is the country dimension and it continues to perform a vital role. Whilst many clients operate on a global or cross-border basis, all of them are also deeply rooted in their local marketplaces and communities. Our country leadership teams ensure we engage effectively with clients, inspire our staff and meet the expectations of the wide range of stakeholders we serve clients, local capital markets, regulators, governments and the business and local communities in which we operate.
Our country operating model is flexible. It can accommodate our largest countries and our smaller countries, such as the Norwegian practice. Over the last year we continued to align our internal operating models and in-country processes to share the benefits of consistency and best practice. Benefitting from economies of scale. Whilst the primary goal of the ELLP is to serve clients better, we also benefit from economies of scale which allow us to invest in new skills and services and to improve our operational effectiveness. Last year for example: ur integrated operating model not o only allowed us to set up two new centres of excellence, but meant we attracted new talent and teams to the firm across multiple countries
e made substantial progress w in integrating and off-shoring our knowledge management and research capabilities; and n support functions we also continued i to roll out our shared services approach in areas such as finance, technology and infrastructure. This year we will continue to use our increased scale to benefit clients, achieve world class standards in our internal processes and deliver quality in everything that we do.
Business review & marketplace.
The issues our clients face are rarely one-dimensional. These days they need support of the broadest and deepest kind. We are working effectively to bring them expert, joined-up, multidisciplinary advice to help them turn challenge into opportunity.
Business review & marketplace.
Audit. Our clients are dealing with increasing complexity through changing accounting standards and changing regulation. They also face greater scrutiny than ever before. To help them cope we are providing a wider range of assurance services beyond the financial statement audit. Separately, policy makers and the general public are asking: can auditors do more to help prevent another financial crisis? We welcome such dialogue about enhancing the role, value and quality of the audit. For our part we are responding in terms of our technology, our people, and the determination to build deeper and more trusted relationships with our clients, investors and regulators.
The external audit has an important role in helping to uphold trust and confidence in our capital markets. However, recent events have questioned whether audits still satisfy the needs of the markets and the broader public. Fair value accounting is under the microscope, and some, including the European Commission, are asking if the audit should cover a wider range of forward-looking risks. We welcome this debate and any measures that enhance audit quality. We are responding to market needs through a wider range of assurance services. Our Maximum Assurance suite covers a number of different assurance services including sustainability reporting, financial forecasts and internal control assurance to name a few. We have also provided extended assurance service to clients such as Rentokil in the UK. We are rolling these services out across ELLP firms. Performance across the countries has been mixed. Overall, Audit revenue has decreased due to challenging market conditions. However, we have improved our margin through a combination of robust pricing and strict focus on cost. We have also won some important new clients including, ABN Amro in the Netherlands, EnBW Germanys third largest electricity producer and Capita in the uK.
In response to the market challenges, we are more effectively leveraging technology. Our biggest investment is eAudIT our new electronic audit file that incorporates methodology, guidance and industry knowledge. This will help us deliver more efficient and effective audits, whilst improving our client service by allowing us to focus on the issues that matter most to our clients. The deployment of eAudIT is progressing well. During the summer period, in the region of 11,000 people have been trained on the tool. This has required a mammoth effort by our Learning & Development department and investment in equipment and infrastructure. ELLP firms have a powerful presence in audit across our markets. For example we audit 57% of DAX 30 companies, 22% of the FTSE100, and 24% of Switzerlands quoted companies. We are also considered the audit market leader in the important emerging market of russia. our strong presence in each of our national markets is essential to our success. We intend to grow our Audit practice across ELLP firms in the year ahead, with healthy growth in the more mature markets and higher growth in the more emerging markets.
Joachim Schindler Head of Audit
-6.6%*
* on a proforma basis for the entities in the legal group at 30 September 2010 at constant exchange rates.
Audit revenue 2010: 1,787 million
Tax. Our clients tax affairs are growing ever more complex thanks to the economic crisis and the effects of globalisation. Increasingly they look to us to design tailor-made tax strategies allowing them to be both compliant and tax efficient, often across multiple jurisdictions. Providing this support requires deep understanding of the challenges each of them faces, so that we precisely match their needs.
As governments reduce deficits built up during the crisis, tax authorities are aggressively chasing corporate and personal taxes. They are also introducing new ones, such as green taxes and, in banking, levies on executive bonuses. Low tax regimes continue to compete hard to attract businesses. The global tax landscape is hyper-competitive and changing fast, and clients need help navigating it.
As businesses move into new markets, they must be sure they are meeting all their obligations in multiple jurisdictions. There is growing demand for co-ordinated global compliance services. We are leading the field in helping large global clients cope with this challenge, winning eight major proposals including GSK and Syngenta.
Large companies face significant financial risks in managing their pension After a difficult year in 2009, our Tax schemes, particularly in the UK where practice benefitted from our investments many defined benefit schemes have in client relationships and increased market large deficits. We have pioneered ways activity with growth in many countries. for clients to manage their obligations flexibly and have helped boards develop Tax globalisation is one of the nine clear strategies for managing priority areas for KPMG. We continue pension risk. fielding the right people to help clients cope with increasing complexity in Indirect taxes, such as VAT, are rising indirect tax, transfer pricing across Europe. Managing the flow of and pensions. these transactional taxes through financial reporting systems is a massive task. The More aggressive tax collection has higher these taxes rise, the greater the meant more disputes between taxpayers need for clients to plan and build robust and authorities, and we are helping clients reporting and payment systems. successfully resolve such disputes through mediation. Managing expatriate tax affairs for global companies remains a growth area. our The German and UK tax authorities are proprietary Short-term Business Traveller targeting individual tax evasion. Many software is helping companies schedule new clients are seeking our help to deployments and manage tax payments. regularise their tax affairs. The Tax practices in our Swiss, UK and Too often companies re-engineer their German firms are particularly active in supply chains or change their operating supporting family offices, a growing model without considering tax source of global investment capital. efficiencies. We are working closely with colleagues in Performance & Technology to help clients build tax planning into change programmes.
Ernst Grbl Head of Tax
-2.2%*
Tax revenue 2010: 865 million
Business review & marketplace. continued

Performance & Technology. Boosting business performance almost inevitably involves technology these days. The complexity, cost and upheaval involved in transforming business means our clients are looking for independent hands-on experience and insight to find and implement the solution that exactly meets their needs. We have targeted Performance & Technology as a priority growth area so we can mobilise our expertise in cost optimisation, business intelligence and tax-efficient transformation to help clients meet their business challenges.
Technology is playing an increasingly important role in helping our clients across all sectors run their operations more efficiently. Financial services clients are facing huge change in both risk and regulation and want to base their business decisions on the full range of financial and risk information. Corporate clients are shifting their attention from tactical cost-cutting to investing in long-term performance improvement which will accelerate growth, often involving the deployment of business intelligence and shared services. In the public sector, the challenge is to deliver more value with less; protecting front-line services while driving up productivity to cope with unprecedented cuts in funding. Demand for our services was strong last year. Clients increasingly recognise our breadth and depth of experience in platforms such as SAP and Oracle and in new areas such as cloud computing. They also welcome our independent advice and our programme management skills combined capabilities which differentiate us from the big strategy houses and systems integrators. This growing recognition is having a positive impact on our results. our Performance & Technology function was the fastest growing part of the business, achieving a 17% increase in revenue, with particularly strong performance in the Spanish, Russia and CIS, and UK firms. We are expanding our skills base. In the UK firm, for example, we hired 425 new people last year, including 39 at partner Aidan Brennan Head of Performance & Technology and director level. We also bought businesses including Analitica (the Hyperion planning specialists) and further acquisitions are being assessed. The formation of KPMG Europe LLP has helped us bring together our best teams across the ELLP firms to win and deliver international cross-border engagements. Teams from the Dutch and UK firms assisted ING in the preparing for the separation of its global insurance business from the banking division. The UK and Spanish firms helped Telefnica on their acquisition of Jahah, their HR transformation in Europe, tax assistance on the acquisition of Vivo, and the reorganisation of their research & development activities in Spain. Other key assignments during the year included providing business intelligence and technology advice on Lloyds TSBs Galaxy internet banking programme which will transform the way customers interact with the banks digital channels and will deliver a compelling online experience. We also helped BP make savings through cost optimisation. We are helping AEGON, the insurance giant, prepare for changes brought about by Solvency II. Cross-function working brings additional benefits to clients. our Performance & Technology and Tax practices, for instance, are working increasingly closely to unlock value by helping clients build efficient tax planning into their business change programmes.
+16.9%*
Performance & Technology revenue 2010: 457 million
Risk & Compliance. Risk is a high priority item on boardroom agendas. Across all sectors our clients are confronted by a maze of increasingly complex regulation. Their challenge is not only to remain compliant, but to do so in an efficient and cost-effective way. Our Risk & Compliance practice across the ELLP firms harnesses our skills and our sector expertise to help clients turn risk to business advantage.
Our clients now find themselves in a significantly more complex regulatory environment at a time of continuing economic uncertainty. New regulations and guidance on corporate governance have multiplied since the financial crisis struck. But banks are not alone in facing this challenge. Managing complex financial, environmental and reputational risks is now a crucial part of life for business leaders across all sectors. Clients do not expect us to eliminate their risk completely. Instead they want our help to take control of it. By embedding effective and efficient risk management and control processes, we are helping boards to transform risk into business value and competitive advantage. Our performance during the year reflects the growing importance of risk in the corporate landscape. The revenues of the legal group were slightly down for the year as a whole, reflecting the fragility of economic recovery in many countries. But we saw rapid pick up in activity in the second half of the year, thanks largely to a sharp increase in regulatory activity in financial services where new rules such as Basel III and Solvency II have begun to take shape. We expect to see this strong growth trend continuing and are anticipating further growth next year because of the heightened focus by our clients on risk and regulation. To achieve this growth we are concentrating our resources where clients most need our help, prioritising banking,
insurance, energy and natural resources, communications and media, the public sector and key industrial sectors. Important assignments we worked on during the year included large transformational projects for clients in the banking and insurance sector, especially with regard to their risk and finance functions. Other key projects included the implementation of effective internal control systems and the enhancement of IT and data security for clients in the energy and natural resources sector, risk assessments for big clients in the communications sector and major forensic investigations across many industries. Through the ELLP firms working closely together across all of our markets, we are well positioned to move our people and our teams quickly to where they are needed by our clients. Technology is an integral part of our services. We have developed marketleading skills in key areas including data cleansing and analysis as well as information and data protection and security. Clients also look to us to anticipate and guide them through proposed changes in regulation and governance procedures. We have now piloted centres of excellence for financial services risk and regulatory as well as climate change and sustainability to keep clients abreast of changes and to foster a three-way dialogue between them, ourselves and other stakeholders, in particular regulators.
Carsten Schiewe Head of Risk & Compliance
-7.7%*
Risk & Compliance revenue 2010: 455 million
Business review & marketplace continued

Transactions & Restructuring. With economic recovery slow and uneven in 2010, our clients found themselves operating in a nervous market. Though M&A did pick up, many businesses continued to focus on restructuring their operations and paying off debt to prepare for sustainable long-term growth. In these difficult times, businesses have needed more trusted relationships, deep sector insights and through the cycle capabilities, which our combined Transactions & Restructuring teams were able to provide.
World-class companies and sector leaders were in a stronger position to make acquisitions, seeing this as an ideal time to bolster their competitive position through deals. They were able to raise the necessary capital with relative ease. But smaller businesses were not so well placed, leading to a polarisation of the capital markets. Restructuring work increasingly called for M&A advice as renegotiation of borrowings often comes with a requirement to dispose of underperforming assets. By moving people around our teams, we provided clients with the right skills and our people with broader experience. Private equity clients once happy to plan acquisitions on cash flow projections asked us to take a much more sceptical view on deals to ensure that proposed transactions were soundly based and sustainable; a likely long-term trend. The new global growth strategy for KPMG provides us with exciting opportunities to develop our client base in key sectors such as financial services and energy and natural resources. Innovation is essential in difficult markets. Examples include the development of our portfolio solutions group, which specialises in advising financial institutions on selling or improving their assets. Revenue for Transactions & restructuring across the legal group for the year came in at 716 million, a satisfactory result given the difficult market conditions, partly due to a very strong performance in restructuring. We maintained our position in the Thomson/Reuters Financial Advisors and Accountants league tables, being ranked No.1 again in 2010. Our landmark assignments for 2010 included: dvising the creditors of Dubai World, a the first major restructuring in the Middle East. dvice on the US$2.2 billion initial a global offering of UC RUSAL shares on the Stock Exchange of Hong Kong, for a consortium of international lenders. he First Quench Retailing t administration appointment; and dvising Bridgepoint on the 955 a million sale of Pets at Home, the largest secondary buyout since 2008.
Simon Collins Head of Transactions & Restructuring
-4.3%*
Transactions & Restructuring revenue 2010: 716 million
Markets Industries. An uncertain world demands that we provide our clients with a different level of support and advice. We are enhancing the way we work to achieve this requirement.
In an uncertain world, it can be hard for business leaders to plan future strategy with full confidence.
The financial services sector is very active, largely due to the seismic changes promised in banking regulation. There has also been a pick-up in private Timing important investment decisions is equity, which became virtually dormant essential, as is choosing the right moment in 2009 as sources of funding dried up. to make an acquisition or to push through a business change programme. In the wider corporate sector there is still a great deal of retrenchment, although At times like this, what clients value our national market clients small and most is having a second pair of eyes to medium-sized enterprises have proved challenge them on the best approach to more resilient to the economic crisis than the issues they face. They also value their larger peers. Public sector clients, the chance to hold an open and honest meanwhile, face severe problems in conversation with us. We act as a countries where spending is being cut to sounding board against which they tackle deficits. So we remain watchful of can test their own thinking. the economic indicators and determinedly So our job is to bring together our wide forward-looking on behalf of our clients, experience of working with companies advising them and helping them respond across sectors and markets and to make pro-actively to emerging trends this knowledge available to clients in a way and opportunities. that dovetails with their strategic needs. Changing priorities. our role is to clear some of the fog from We have found that most clients have the landscape and to help our clients plot three major challenges in common: a path forward; one dimension of cutting aking sure they stay stable and m through complexity. healthy now. The market challenge. orking out how they can take w Economic recovery has come back to advantage of growth opportunities our markets unevenly. Some continue to in the next 12 to 18 months; and struggle with low growth and continuing disarray in real estate markets. Germany dentifying where long-term i has bounced back more strongly than growth opportunities might lie; how most on the back of an export-led recovery to exploit changes in technology; how in unaffected markets, particularly China. relationships with their customers are But clients remain cautious and are likely to evolve; and what impact the holding back on discretionary spending sustainability agenda will have on and transactions. their businesses.
Jeremy Anderson Head of Markets and Financial Services

In the early part of the year, businesses were firmly focused on the short-term challenges. By the end of the year they were finding more time to think about the more forward looking challenges. A joined-up response. As clients assess their strategic choices our role is to provide them with a series of road maps so that they can keep their options open as they plan for the future. We are doing this increasingly by organising ourselves around the issues clients face, rather than around our own expertise. Across the ELLP firms we are joining up our cross-sector and crossmarket knowledge so that we can bring clients a global perspective of what best practice means. Such insight is immensely valuable to a global retailer, bank or energy company. It is also vital to a smaller business that forms part of an industry supply chain. You will see this joined up approach in financial services, for instance, where our cross functional working mirrors the challenges which our clients face. The people challenge. Building trusted relationships with clients is at the core of our business and we are developing our most able people to take on these key trusted advisor roles. Across the ELLP firms, we are working to make sure our people have the confidence to build on their own deep specialisms and form broad business advisor relationships with clients. We are equipping our people to engage with clients on the full range of challenges they face, so that our advice relates to the context of what they are doing as a complete business. This results in dialogue with our clients which is more valuable for them and more rewarding for us.
Client focus: A case study. Helping Barclays cut through complexity.
Achieving Operational Excellence.

Barclays Group has identified Operational Excellence as one of its strategic priorities. To begin that group-wide journey Peter Estlin, now CFO for Barclays global retail bank led a programme to pilot and then implement Lean, a management practice that considers the expenditure of resources to eliminate waste and deliver customer value and service, in one key function, Group Finance.
Peter Estlin asked us to work with his Finance Management Team to help design and implement Lean within this function using Lean Organisation review, Lean Process Review and Lean training. A team led by Denis Reynolds, Partner from Financial Services in the uK firm worked with John Clarke, MD Barclays Group Centre Finance, who project managed the initiative. We helped introduce Lean techniques in key functions and processes and created a modular just-in-time training programme to transfer and embed Lean skills within the various teams. our first task was to agree the Group Finance Cost Base and to help the team select the right processes for the Lean review through their own effectiveness and efficiency self assessment process. Our knowledge of Barclays and of the wider banking sector allowed us to understand the challenges they would face and to work with them to identify areas where significant process improvement and cost savings might be achieved. The review identified gross potential annualised savings in excess of 25%, with a 30% reduction in total processing time, freeing up capacity for the function to develop higher value services for customers. There were some important intangible benefits too, including offering teams working on the process a better work/life balance. Two thirds of people working in Group Finance participated in one or more training modules, either through formal Lean Training or workshop attendance. This has helped to embed Lean capability in these teams, supporting the Functions continuous improvement towards overall Operational Excellence. Commenting on our work, Peter Estlin said: KPMG translated the theory into tangible and sustainable benefits, setting the benchmark for other functions within Barclays to use Lean to support their journey towards Operational Excellence.
KPMG translated the theory into tangible and sustainable benefits, setting the benchmark for other functions within Barclays.
Business review & marketplace. continued

Consumer & Industrial Markets.
Consumer goods manufacturers and pharmaceutical companies are working together on healthy food products. Market snapshot: Business Asian investors are keen to buy Western transformation is at the top of the agenda European brands to obtain access to for clients across all the sectors we cover. the established markets, recognising As economic recovery gradually picks that brand reputation is essential. But up pace, companies are looking at how increasingly we expect them to invest in best to boost their efficiency. Whilst production capacity for these brands at cost cutting remains a key issue, now home rather than in Europe. other sectors companies are increasingly looking at are already shifting manufacturing. The how they can operate more constructively chemical industry has closed huge to deal with overcapacity in Western amounts of European capacity in recent Europe and uneven demand across their years, investing in the Middle East instead. global markets. Different sectors are at Raw material prices are likely to rise different stages in the recovery cycle. sharply in the near future posing a The common thread is the need for significant challenge for companies. As them all to align their operating models globalisation matures, we believe there to survive and thrive in an increasingly will be far less differentiation between complex global environment. emerging, developing and saturated markets. Issues ahead: Convergence between the sectors is getting more important How we are responding: as companies look to build businesses in ervices which specifically cater to S new sectors to meet demand for new helping clients survive in turbulent products and services. Energy providers, times have been in great demand. for instance, are starting to enter the With each client at different stages automotive industry by offering mobility in the economic cycle, this demand services such as customer energy remains strong and will continue in contracts for e-cars, including the car itself. key service areas, particularly performance, risk management and technology. ust as clients are looking to different J sectors to learn and share ideas, we are encouraging our sector experts to combine their specialist knowledge with a broad understanding of how companies across sectors are adapting to change. Clients are looking towards us to provide a broad range of professional services to support them. e have developed a cross-sector W Management Agenda which enables us to make proposals and put forward ideas which meet clients individual needs. ur sector-wide Management Round O Table events continue to attract senior executives, providing them with a forum to share experience. o keep clients up to date with key T emerging trends, we regularly publish studies and white papers on www.kpmg.eu ey assignments during the year K included helping a global conglomerate build regional clusters to strengthen its infrastructure and governance. We supported an Indian company to make acquisitions and helped a global pharmaceutical company optimise its supply chain. s patterns of investment across A Europe change, our strong presence in key developing markets such as the CIS and Turkey means we are well placed to help the firms clients grow. Proforma Revenues by market industry 2010
Consumer & Industrial Markets 1,469m Financial Services 1,259m Infrastructure, Government & Healthcare 971m Information, Communications & Entertainment 451m Private Equity 130m
ith Norway and Saudi Arabia joining W KPMG Europe LLP means we will be in an even better position to help clients in the ENR and chemicals sectors to plan their growth strategies.
Financial Services.
Market snapshot: The financial crisis has unleashed a wave of proposed new regulations, the full impact of which will take some years to be felt. Dealing with these and with unprecedented government intervention has now become a core part of strategy for banks, insurers and investment houses alike. The last year has also been about rebuilding confidence and managing scarce resources to rebuild depleted balance sheets. Given all that, recovery has come back to this sector more strongly than many dared imagine in 2008 when global banking came very close to meltdown. Issues ahead: Many institutions are returning quickly to profit, but few expect to go back to business as usual. Uncertainty will continue to be the order of the day and our clients increasingly need our help to make sense of this fast-changing world. Key issues for banks and insurers will be the implementation of new capital requirements proposed under the Basel III and Solvency II initiatives. For investment houses, the European Commissions UCITS IV regulations come into effect in 2011.
Remuneration is likely to remain at the top of the agenda. But more far-reaching changes may be forced on banks. The UK Independent Banking Commission is set to make recommendations on the future structure of banks. Should they be broken up to foster competition? Should retail and investment banking be separated? Planning for the future in such uncertain times is immensely difficult. Managing risk has become much more complex; responding to regulators demands for greater transparency requires new thinking, new technology and, in some cases, significant business transformation. How we are responding: inancial services is a key priority F growth area for KPMG Europe LLP and we are investing in new resources across all our service areas. KPMG internationally is developing London as a global centre of excellence for Risk and Regulation in Financial Services, with a focus on bringing the most skilled of our people, across disciplines, to work together to resolve client issues. his reflects our determination to T provide integrated expertise across disciplines and geographies to match the demand from our clients for a broad range of specialist advice and support.
ur integrated approach is helping O us better understand the changing needs of our clients and respond effectively with tailored, multidisciplinary solutions. andmark assignments (involving L cross-border teams) during the year included helping ING in the preparation of the separation of its global insurance business from the banking division, and helping AEGON, the insurance giant, prepare for the changes required by Solvency II. or the third year running we won F Euromoneys Best Islamic Assurance and Advisory Services Awards. e continue to play a lead role in W shaping the debate over the future of financial regulation. We are actively supporting moves to give auditors a wider remit to provide greater assurance to investors, a key theme in the European Commissions investigation into the future of auditing led by Michel Barnier.

Information, Communications & Entertainment (ICE).
Market snapshot: Our ICE clients saw the beginnings of a recovering market in 2010, with consumer spending on items such as smartphones, holidays and TV subscriptions holding up well. Business spending began to return with increases in business travel and advertising helping to foster growth in the telecommunication and media sectors. Demand in the technology sector was enhanced as customers used IT to respond to changes in regulation and address their cost structures, although this was partly offset by uncertainties over public sector spending. As growth returned, clients shifted their focus from cutting budgets to implementing more sustainable cost structures and efficiencies, through technology, shared servicing, offshoring, outsourcing and centralisation. Many successful businesses also concentrated on revenue generation by capturing untapped payments, billing for additional services or identifying new revenue streams. There was a high level of transaction activity early in the year, and we saw a number of Initial Public Offerings, particularly in the telecommunication and leisure sectors.
Issues ahead: Each of the ICE sectors is going through a process of evolution, presenting clients with challenges and opportunities as they adapt to the changing world. For example, with smartphones and data devices now established in the market, the challenge for communications companies will be to increase revenues and margins from data. For media companies the continued diversification of advertising media and the migration of spend from traditional media to online presents an ongoing challenge of monetising online services. Technology companies have a key role to play in helping businesses become more efficient and meet regulatory requirements. New devices such as the iPad and Kindle, and the related growth in the apps (applications) market, demonstrates continuing consumer demand for new technologies.
How we are responding: n an environment where competition I for market share drove down prices, we engaged heavily in helping our clients sustain and grow margin. Our Intellectual Property team helped recover substantial sums for our clients in uncollected revenues, our Operational Performance team put new centralised service facilities in place, yielding sustainable cost savings, and our working capital team brought focus and discipline to managing cashflows. t was a busy year for our Transactions I team where our industry insights helped our clients enhance value both on acquisitions and on bringing assets to a more buoyant market. 20-strong team, from across KPMG A Europe LLP helped Sony design a new finance operating model to support local sales and marketing companies across Europe using an integrated service delivery model, comprising internal resources and a third party outsource provider read more on page 34.
Government and healthcare are priority growth areas for KPMG firms globally and we are well placed, within Europe LLP, to help clients find more efficient ways to deliver services at a time of shrinking spending.
Infrastructure, Government & Healthcare.

Market snapshot: The focus for our clients has switched from surviving through the financial crisis to dealing with reduced public sector spending as governments try to cut national debts. our government sector practice built a strong reputation during the crisis and we continue to work closely with institutions responsible for stimulus and rescue packages. Government and healthcare are priority growth areas for KPMG firms globally and we are well placed, within Europe LLP, to help clients find more efficient ways to deliver services at a time of shrinking spending. Across our markets greater collaboration between the public and private sectors is a growing theme.
Issues ahead: Deficit reduction will be the big theme for our clients as governments look to cut spending while continuing to safeguard the economic recovery. In this complex environment we expect our clients to look for increasing levels of support and advice in identifying innovative ways to reorganise their budgets and boost efficiency. Performance improvement, costoptimisation and asset disposals will continue to be major priorities for them. How we are responding: e are advising the Dutch Police force W on setting up shared service centres to manage their finance and human resources functions. e are acting as the official trustee for W State Guarantees for one of Germanys federal states. This is our first assignment in a market previously dominated by one of our competitors and reflects our growing reputation, following the financial crisis, in advising governments.
he KPMG Public Governance T Institute was founded in Germany in 2005 to promote the highest standards of efficient public administration. KPMG has now launched similar institutes in the UK, the US and in South Africa giving clients in those countries far greater value and insight. e worked on Europes biggest W transaction in the transport sector, Deutsche Bahns 1.5 billion takeover of Arriva. e are advising the new UK coalition W government on welfare reform and on defence acquisition. udit remains a strong part of our A business with both public and private sector clients. Major wins during the year included the business services group, Capita. e are providing strategic advice to W the Walloon Region and the French Community in Belgium as well as supporting its treasury and debtmanagement functions.
Client focus: Q&A with Mark Britnell. The state of healthcare.
Huge opportunity in healthcare.
Mark Britnell formerly the Director-General for Commissioning and System Management in the uKs National Health Service has joined ELLP and is heading the healthcare practice across KPMGs global network of firms. Here he describes why healthcare is one of KPMGs global priority growth areas.
Q: Why is healthcare a priority area for KPMG? A: It is a huge opportunity for us globally. KPMG firms currently generate revenues of more than US$600 million a year providing audit, tax and advisory services to the sector. our ambition is to triple that over the next five years. Q: Where will that growth come from? A: In developed healthcare markets like Europe, the US and Australia all health systems are facing the same problems. We as nations are getting older, living longer and spending more and more money on healthcare. Most governments are trying to restrain spending on health, so that provides a number of opportunities for us to advise them on different options. In developing countries such as India and China in particular, but also places like Russia and Brazil, we are seeing the emergence of a middle-class. They all want better healthcare and this presents us with both public and private sector opportunities.
Q: And yet all healthcare systems are different some public, some private. How can you have an impact in such a diverse market? A: Yes it is true that healthcare is primarily organised along the lines of national geographies. But all of the trends in healthcare are similar. We are finding increasing convergence. The US is seen as a largely private healthcare market, but in the next couple of years funding for healthcare from the government is likely to increase. And while the UKs national health service is largely a public system, increasingly we are seeing a public/private mix. So we are starting to see many more similarities in the way we look at problems and solutions. Q: What is KPMG doing to address these challenges? A: Within KPMG Europe LLP, the UK firm has the largest public and private sector health practice. We are steeped in experience and have a track record of providing innovative solutions. We are now using our success in the UK as a template to develop KPMGs practices in other key parts of the world, in particular Germany, the Netherlands, Singapore, Australia, the US and Canada.
Q: We are in an age of austerity. How can we help health services do more with less money? A: The scale of the challenge facing our health clients now means that approaches often need to be taken at the local system level, rather than organisation by organisation. KPMG has helped neighbouring healthcare purchasers and providers to work together to redesign services, so that increasing demands can be accommodated without increase in funding. Our deep experience in transactions means we can help to scope and implement the changes in organisational architecture that are often needed as systems evolve. Within individual organisations we also have years of experience in helping clients refine their strategies and drive out inefficiency from internal processes. With many clients under huge budgetary pressure, we are increasingly undertaking work on a payment by results basis, in order to align our performance with clients objectives.
Our five global healthcare propositions

1 Board Grip good governance, good information, the right internal structures, a well run organisation. 2 Quality and Margin Management reducing operational cost while improving quality. 3 Electronic Health using telemedicine and technology to improve care and record keeping. 4 Organisational Architecture public and private provision, mergers, jointventures, Private Finance Initiative projects, Public and Private Partnerships. 5 Care System Redesign moving care from hospitals to lower cost facilities in primary and community settings.

Private Equity.
Market snapshot: Significant deal activity returned to the Private Equity (PE) market after a difficult 12 months the previous year. With debt increasingly available in the market, we saw renewed appetite for large scale and mid-market deals. As a result we moved from helping clients restructure their portfolio companies to assisting them with new investments. Although the market remains fragile, and vulnerable to new shocks, deal activity is now back on a more stable footing, albeit not at the levels seen before the financial crisis. Issues ahead: Changes in legislation in Europe and the US and new capital requirement regulations could have a significant impact on the PE market. Ultimately new legislation will mean our clients have to focus more on governance and enterprise risk management. Despite the recession, amounts available to be invested remain high. However, in Europe the market for deals between 250 million and 750 million is becoming increasingly crowded and some shakeout of the industry is possible in the next three to five years as PE houses try to raise new funds. How we are responding: inancial services is an area of F otal revenues across the legal group T significant activity and we worked on grew during the year, with significant a number of key deals including the increase in the UK and the Netherlands. 2.025 billion sale of RBSs WorldPay Spain remained a more difficult market business to Advent International and and there was no major pick up in Bain Capital. activity in Germany. he Netherlands firm provided T e have successfully built W corporate finance and audit services relationships with major new key to Bencis Capital in its acquisition of clients such as KKR and Warburg Royal Sanders. Pincus by focusing on new ways to ther landmark deals included O provide our clients with additional Bridgepoints 955 million sale of insights and value. the Pets at Home business to KKr. s competition for deals builds up, A n the Sovereign Wealth Fund arena, we I and with equity/debt arbitrage likely to advised creditor banks involved in the be a thing of the past, PE houses are restructuring of Dubai Worlds finances. increasingly focusing on operational change. This is leading to increased demand for our services which focus on performance improvement.
Jeremy Anderson Head of Markets and Financial Services
Dieter Becker Head of Consumer & Industrial Markets Ulrich Maas Head of Infrastructure, Government & Healthcare
Graeme Ross Head of Information, Communications & Entertainment Rustom Kharegat Head of Private Equity
30 | KPMG Europe LLP | UK Annual Report 2010
National Markets.
Economic recovery came to most of our national markets during 2010, but the pattern of growth was uneven. Our local offices are providing vital guidance to clients in these uncertain times and helping them steer a path towards sustainable growth.
In 2010 we operated a network of 116 offices in the 14 countries that made up KPMG Europe LLP. Our offices provide us with an invaluable insight into some of the most dynamic local and regional economies in our markets, allowing us to understand in great detail the challenges companies face at a local level. By bringing these resources together in an integrated way we are enhancing the service we bring to our clients, whether they are big global companies or the growing national market businesses that form the backbone of our economies. It allows us to bring a global perspective to the challenges they face and to tap a wider pool of expertise, drawn from right across the firm, to find the solutions they need to grow and prosper.
National markets.
Belgium. The crisis led to a sharp downturn in the Belgian economy. Exports have recently picked up but fiscal austerity and price competition pressures continue. The challenge is to do more with less in all sectors. Government departments and regional authorities, in a country with three languages and multiple layers of public administration, are looking to simplify bureaucracy to provide better services at lower cost. In the power sector, smart networks, smart meters and the integration of new sources of energy such as solar, wind and biomass are all opportunities we are helping clients with. Demand remains strong for Basel III and Solvency II services. KPMG in Belgium highlights: he Tax practice recovered from a T difficult year in 2009. Advisory was challenging, but we continued to invest with important external hires. e have developed two centres of W excellence in Belgium one focusing on the management of assets in the power and utilities business and the other on process simplification in the public sector.
niquely amongst the Big Four U accountancy firms, KPMG in Belgium is a patron of the UKs Institute of Asset Management. We are working with the Institute to convert the PASS55 asset management standard into an international ISO standard. This will allow us to work with clients across the world in utilities, rail, airports and infrastructure. n transport and public services we I won a range of advisory assignments to the three rail companies in Belgium, having been appointed auditor to the main holding company in 2009.* e are working with the Flemish W Government to simplify its public Service delivery looking at areas as diverse as disability benefits, marriage registration and business support. We have won further assignments in Greece and Germany based on this work. The competition for talent remains fierce so our position as an employer of choice remains a priority.
* PMG Europe LLP legal group includes only the K Advisory function in Belgium. The entities providing Tax and Accounting services are associates and the Audit function is not legally connected to KPMG Europe LLP. However, all these entities operate in close collaboration.
Germany. The German economy went into steep decline as recession took hold and export orders came to a standstill. Driven by a return to growth in key markets particularly China the economy has recovered just as rapidly. Economists were forecasting growth above 3% for 2010, but overall activity is not yet back to levels seen in 2008. DAX 30 companies have seen their earnings recover having used the crisis to boost their reserves and efficiency. Medium-sized companies have also weathered the crisis well. Family-owned businesses have successfully raised finance through the bond markets rather than resorting to further bank lending or flotation. Germanys strong industrial base and its dependence on exports means companies across a wide range of sectors have had to prepare for the shift in economic power to the East. Europe remains the most important export market. But China and other emerging economies like Brazil are increasingly important, particularly with US demand depressed. There is concern about how long these emerging economies can sustain current growth rates, and what happens if a crisis strikes them. Planning investments in new markets, deciding what resources to maintain at home, protecting brands, trademarks and patents are all issues clients are thinking about carefully.
Erik Clinck Head of Markets, Belgium
KPMG in Germany highlights: e won important new work in the W Performance & Technology area despite a mixed picture in Advisory services with less restructuring work than in the previous year when clients were taking swift action to counteract the downturn. here is further growth potential in Tax T and Advisory services, particularly as our clients return to the M&A market. We continue to recruit strongly at all levels from graduates through to managers and partners, to boost our expertise in key areas, particularly Tax and Performance & Technology. The competition for talented people is intensifying. To retain our best people we are working hard to create a culture in which they can thrive, and to match their expectations on career progression and opportunities.
Luxembourg. uring the year we worked closely D Although highly dependent on the with colleagues across the ELLP firms financial sector, Luxembourg weathered and with the European Fund Asset the financial crisis better than many other Managers Association (EFAMA) to financial centres. As the worlds second analyse the tax implications of the largest centre for investment funds, it UCITS IV directive. We used this work acts as a leading domicile for global to prepare a paper for the European financial groups looking at exporting Commission on how best to implement their investment funds across the EU the new regulations and to provide and globally. Some 80% of the UCITS deeper insight and better advice to (Undertakings for Collective Investments clients as they prepare for the changes. in Transferable Securities) distributed ur 820 people work as a multiO cross-border in the EU are domiciled disciplinary team. This has underpinned in Luxembourg. our performance and made us agile in meeting clients changing needs. Regulatory change will be a major issue for our clients in the coming year. s most of our clients are A Implementation of the European headquartered outside Luxembourg, Commissions UCITS IV regulations in the formation of KPMG Europe LLP July 2011 will lead to significant change in is presenting us with important new the investment funds industry and we are opportunities. We have re-organised helping clients prepare for that upheaval. the client services teams for our large international clients so that we can KPMG in Luxembourg highlights: bring more of our insight and expertise verall revenues were stable. Audit O to them on a global basis. We are now turnover remained relatively flat extending this approach progressively while our Tax practice increased its to our other clients. revenues and now represents 30% of our business. dvisory services grew fast. We are A recruiting heavily in this area and looking for 20% growth next year. The Performance & Technology practice is well established one reason why we continued to grow this year in spite of the financial crisis.
Robert Gutsche Head of Markets, Germany
Vincent Heymans Head of Markets, Luxembourg
Client focus: A case study. Helping Sony cut through complexity.
One of the key challenges was to create an integrated team that could immediately win the confidence of the client by demonstrating a really deep knowledge of Sony and the issues it faces.
Sustaining efficiency.
Sony Corporation launched a world-wide review to simplify, standardise and increase the speed of its operations.
Sony Corporation launched a worldwide review to simplify, standardise and increase the speed of its operations. As part of this review Sony Europe launched Project RISE, an end-to-end re-evaluation of operations including procurement, supply chain management and distribution, sales and marketing, finance and accounting, Information Systems and HR. A 20-strong team from across ELLP firms helped design a new finance operating model to support local sales and marketing companies across Europe using an integrated service delivery model, comprising internal resources and a third party outsource provider. We helped Sony simplify processes, reviewed the likely return on investment of the project, which included 28 efficiency measures, and helped identify and manage risks, this allowed Sony Europe to deliver significant efficiency savings and boost operational performance. The work was carried out over a 16-month period by a team of experts from our Performance & Technology and Tax teams, with local country tax and statutory accounting support provided by a number of our ELLP firms. one of the key challenges was to create an integrated team that could immediately win the confidence of the client by demonstrating a really deep knowledge of Sony and the issues it faces.
National markets. continued.

The Netherlands. The Dutch economy is emerging steadily but slowly from recession. Many financial sector groups such as ABN Amro, AEGON and ING either Became state-owned or received state aid. Corporate clients, like their peers across Europe, were heavily affected by the downturn. s a condition of winning state aid, A ING, with our help, developed a restructuring plan for the European Commission, involving separation of its banking and insurance divisions. We are working with them extensively to help implement this, involving KPMG people in 20 countries across the world. We are also helping evaluate the best options for exiting state ownership. Russia and CIS. The Commonwealth of Independent States (CIS) fell steeply into recession in 2008. With high oil prices, stable exchange rates, and strong financial reserves, markets have recovered quickly. Now the focus is on cost reduction, performance improvement and better risk management. Reserves of energy and natural resources provide a strong backbone to the economy, but important parts remain underdeveloped and ripe for investment. A further challenge is the modernisation of industry and infrastructure, with Governments determined to diversify their economies by investing in high technology, agriculture and the financial sector. KPMG in Russia and CIS highlights: he Russia and CIS firm has a market T leading position with 15 offices across Russia, Armenia, Georgia, Kazakhstan, Kyrgyzstan and the Ukraine. uring the year we supported UC D RUSAL become the first Russian company to achieve a listing on the Hong Kong stock exchange (US$2.2 billion IPO). We also won the audit of Norilsk Nickel.
Clients are emerging from recession into a new environment. The priority for our landmark assignment was to help A financial services clients is regulation and AEGON prepare for the changes being governance, with growing public and brought about the new Solvency II customer demand for them to be more regulations. transparent. Those banks fully or partly owned by the state need to develop n the corporate sector we became I strategies to regain their independence. auditors for Mediq. We undertook a critical project helping Refresco Transforming performance is the develop their internal organisation major theme for our corporate clients. prior to an Initial Public Offering. Fundamental reforms of the public e are bringing new expertise into W sector in areas such as healthcare the firm to help us address our clients are creating new opportunities for us biggest challenges. We were delighted to help clients. to hire Wouter Bos, the former Deputy KPMG in the Netherlands highlights: Prime Minister and Finance Minster, to e were appointed as auditors to ABN W head our healthcare and government Amro, reinforcing our reputation as advisory practice. leading professional services providers s the economy recovers we A to the financial services industry. anticipate growth will return in our Audit practice and expect our Advisory services to expand rapidly. We will be working closely with our colleagues across the Benelux countries to utilize our complementary skills.
Jurgen van Breukelen Head of Markets, The Netherlands
National markets continued

e are expanding our range of W services to clients, building on a strong position in Audit. Our Tax practice is growing strongly; we expect demand for Performance & Technology services to grow. There is strong demand for Risk & Compliance services, particularly from banks and insurance companies. he energy and mining sectors T remain central to the economy as operators expand abroad and attract international capital and expertise to exploit untapped reserves locally. This year we established a centre of excellence for energy and natural resources in Moscow, reinforcing our team with internal promotions and external appointments. e are building our government team W to work with public sector clients and state owned companies. unlocking a market of 250 million consumers in the CIS is a major opportunity for international companies, with significant potential demand for everything from cars to food and durable goods. We are driving a major project to boost foreign direct investment, working with 12 large Russian regions and up to 60 foreign companies. our report on the major enablers and barriers is being published at the end of 2010. Spain. There were some signs of improvement by the end of the year, but economic growth is not forecast to return until 2011. Access to credit for many companies remains restricted, placing a continued focus on cost reduction, cash conservation, efficiency and restructuring. Regulatory reforms made governance and risk management a board agenda item, particularly in banking, where the awaited restructuring of the savings banks began. Unemployment remains a pressing issue. The economy must reduce its overdependence on real estate, so boosting efficiency and competitiveness are key priorities. KPMG in Spain highlights: inancial risk management advice, F part of our risk & Compliance services, and Transaction Services & Restructuring were all in high demand. We were named Financial Advisory firm of the year in Spain by Intercontinental Finance Magazine. Published rankings showed we were the leading financial adviser by number of transactions successfully completed. e became a Registered Adviser in W Spains new Alternative Investment Market and have already advised companies on how they can use this market to raise new capital. ntense competition caused pricing I pressures for our Audit practice, but we continued to win clients and provided new assurance services to the public sector. We were appointed auditors to the international security systems company, Prosegur Group. e invested heavily in on our Tax and W Performance & Technology practices and reinforced our sector expertise in energy, telecommunications, financial services and public sector. ur Tax practice grew strongly O supported by increased activity in financial services, M&A, international corporate tax advice, transfer pricing and indirect tax advice. We were named Energy Advisory Firm of the Year in Spain by Corporate International Magazine. e grew in telecommunications W and Energy, where we were awarded important assignments with Gas Natural Fenosa and Iberdrola and advised on several key gas network transactions with infrastructure funds. rivate equity business remained P depressed, but there are now signs of a possible pick up of activity in 2011. Our investment in new skills allowed us to provide the right support for our clients as the economic cycle changed, and we continue this investment.
Marc van der Plas Head of Markets, Russia and CIS
Celso Garcia Granda Head of Markets, Spain
Switzerland. The economy is recovering, with sectors such as pharmaceuticals and chemicals performing strongly. There is growing Asian interest in Swiss premium brands and consumer goods. Large industrial groups have benefitted from growth in emerging markets. The financial services sector has recovered from the crisis although tough regulations and increasing client pressure is forcing the sector to rethink its business models. The private banking sector remains strong despite radical regulatory changes and prospects for the banking industry remain good because of the quality and professionalism of the sector.
ax grew strongly, helping clients T make tax efficient choices on outsourcing, and through providing transfer pricing and international executive services. We helped many new clients regularize their uncleared assets in Swiss banks as a result of the German governments campaign against tax evasion. he Advisory practice performed well T particularly in the forensic and real estate sectors. Under a new leadership team we are building our Performance & Technology expertise where we have made strategic new hires.
Turkey. The recent crisis, Turkeys second financial crisis in a decade, hit the economy hard, but it has rebounded with growth rates faster than other European economies. The government is implementing a radical programme of political and economic reforms as the country seeks to meet membership criteria for the European union.
Privatisations of rail, infrastructure, oil, electricity and gas should attract new foreign investment from some of the worlds biggest operators. The government is also anxious to strengthen the countrys ur national market clients remain a O manufacturing base by encouraging priority. Through our regional offices more investment to improve productivity we offer a truly multidisciplinary service among already highly competitive Corporate clients are focused on cost, to help this vital part of the economy producers in key sectors including back-office efficiency, supply-chain thrive, including advice to many private automotive, components, arms, textiles management and optimising performance. clients who manage the international and leather to ensure that they can affairs of large family businesses. compete with rivals in Eastern Europe, Mid-market companies remain the China and India. backbone of the economy and their ooking ahead we expect to see L demand for our services is growing growing public sector demand with Whilst Turkey remains a bridge between electricity liberalization under review the West and Asia, the leading companies KPMG in Switzerland highlights: and the needs for government and are also looking to build capacity in new udit revenues were down, but our A healthcare organisations to find more overseas markets. For instance, the financial services Audit practice efficient ways to manage resources, Karsan Taxi of Tomorrow was shortlisted benefitted from a pick up in the sector, as healthcare and pensions systems ahead of many established names in with strong demand for help with come under increasing pressure. the industry to replace New York taxis, the regulatory and risk compliance reflecting a growing desire to build locally challenges our clients face. We also anticipate growing demand for designed products that can compete our services from China and other around the world. emerging markets looking to benefit from Switzerlands attractive business and financial environment and its powerful links between business and universities.
Hubert Achermann Senior Partner and Head of Markets, Switzerland
National markets continued

KPMG in Turkey highlights: n the first year as an ELLP firm*, we I have evolved our business to meet growing demand for our services. ur Audit practice faced intense O competition with the introduction of new regulations for mandatory rotation of auditors. Nevertheless audit remains a key strength, particularly in financial services with clients such as Vakifbank, Dou and Afken. UK. With continued economic uncertainty, clients have concentrated on cash control, efficiency and performance. Bank lending and working capital remain big issues and we have worked with clients to help renegotiate their bank facilities in good time. hilst there was a decline in Advisory W work for public sector clients, overall demand for Advisory services grew, particularly in Transactions & Restructuring. We helped many clients with disposals, handling eight major transactions in eight weeks, including the sale of Card Factory. We advised Blacks Leisure Group PLC on an innovative restructuring using a Company Voluntary Arrangement as part of their turnaround plan. This improved the profile of the business and enabled it to seek 19 million in fresh equity for future investment. amily Office work continues to be an F area of important cross-border activity, so we ran the first of our Family First summer schools to help prepare the next generation of leaders in family businesses for commercial life ur people remain at the core of our O success. Our updated Emerging Leaders programme has introduced more interactions with peers in other organizations to help our future leaders develop a wide perspective on the issues facing businesses and enable them to provide even more valuable insights for our clients
Retailers, food manufacturers, and financial services businesses have performed well. Some clients have returned to the M&A market, but many e made important external W more are awaiting the right time to make appointments to boost our Tax practice. their move. Public sector clients and e are investing in expanding Advisory those private sector companies who are W services to increase our expertise In suppliers to the public sector are entering infrastructure and government, energy, a very turbulent time due to the dramatic private equity and transactions. This cuts in public spending proposed by the aligns with the Turkish State privatization new coalition Government. programme and growing demand from KPMG in the UK highlights: clients for help in adjusting to market evenues from medium-sized clients R reforms, boosting efficiency and were resilient, with many of them reducing costs. weathering turbulent times better Over the next three years we plan to than larger businesses. increase the firm substantially from the udit revenues remained relatively A current 540 people, but the emphasis flat, with price pressure compensated will be on attracting the right talent to by new prestigious clients including bolster our capabilities maintaining the Punch Taverns and Capita. highest quality at all costs. here was good growth in our Tax T * he entities currently operating in KPMG Turkey T practice helping clients such as GKN are not consolidated in the ELLP group financial tackle their pension deficits. There statements but operationally they work with other member countries to provide integrated was growing demand for help in client services. managing indirect taxes.
Luis Walter. Head of Markets, Turkey
Malcolm Edge Head of Markets, UK
As clients assess their strategic choices our role is to provide them with a series of road maps so that they can keep their options open as they plan for the future.
People.
Talented people are highly mobile, so our search for the best people must increasingly be global. By offering inspiring international career opportunities we will continue to recruit and retain people our clients really want to work with.
Our success in recent years has been underpinned by an important but simple principle: by attracting and retaining the very best people we will win valuable and exciting work with high calibre international clients. We have continued to develop our approach to recruitment, diversity, career development, reward and remuneration in the belief that being the best firm for our clients and the best firm for our people go absolutely hand in hand. This is particularly true at a time when the competition for talented people is as intense as it has ever been. It is also vital as our own ambitious growth plans for the next three years envisage increasing our headcount of client-facing staff within ELLP firms by 9,500. Our priority during the year was, therefore, to widen our search for the best international talent, to strengthen our approach to recruitment and to continue developing a high performance culture within which our people, at all levels, can excel in serving our clients. Recruitment a global approach. The talented people we wish to recruit are increasingly willing to move between countries. Individuals have become far more mobile and intent upon widening their level of professional experience by seeking opportunities to work worldwide. One of the key benefits of being part of KPMG Europe LLP is an ability to offer real international career opportunities to people from their very earliest days.
During the year more than 700 people worked on secondments in other countries or completed international transfers and we are doing all we can to make sure more of our people have the right support to live and work in new locations. We plan to launch a number of programmes across the ELLP firms to support our new joiners who are willing to be mobile from the start of their career. We are fully committed to recruiting the very best talent. For more senior appointments, we are now searching across the world, particularly as we build key parts of the business such as Performance & Technology and our financial services, energy and natural resources and healthcare practices. To develop outstanding talent within our businesses and as a response to the Fair Access to the Professions report within our Audit practice we have launched a new school leavers programme in the uK.
Rachel Campbell Head of People
Creating tomorrows leaders.

Our emerging leaders programme now involving some 700 of our most talented people across ELLP is proving increasingly valuable. We are looking for people who are not afraid to lead, no matter how junior they are, and who are passionate about the future and the part they can play in our continued success. We expect them to be highly mobile and to develop the sort of agility that comes from having an international mindset and a breadth, as well as a depth, of business skills. Increasingly our emerging leaders are working closely with our clients, such as BT in the UK and Informa, the publishing group, in Switzerland, on real client issues to give them early exposure to very senior people and complex business challenges. We are committed to: giving them places on our international client service teams creating secondments with clients nvolving them in mentoring programmes with peers in client i businesses; and ncouraging them to think like partners and develop their e own networks with each other and with clients. Our innovative Brave Banana online ideas forum set up and run by those on our emerging leaders programme gives participants the chance to throw their ideas at some of the biggest challenges our clients face. It is now attracting contributions from across ELLP firms and growing interest from clients. This approach to nurturing talent is paying dividends. Retention of those on our emerging leaders programme is running at a rate of 97%.
People. continued.
But pay is not always the most important aspect of reward and the expectations of some of our younger professionals are changing fast. Flexible working arrangements, recognition, the chance to gain experience outside KPMG on secondment, clear career paths and the chance to work internationally are all among the issues they see as important. We actively promote all these practices. Across KPMG we are determined to help more of our most talented women progress to partner level through active mentoring, supported by development programmes, support networks, family support and explicit targeting. Diversity networks including KNOW, our womens network in Germany, Switzerland and the UK, the Islamic Society in the UK and Pride@KPMG, our lesbian, gay and bi-sexual group in the Netherlands continue to thrive. They provide a real forum for developing beneficial relationships both inside KPMG and with clients. Finally, action on disability is also a priority, across KPMG Europe LLP. The UK, CIS and Spain in particular are all focused on ensuring we create a workplace that is attractive to talented people with disabilities and of course to our disabled clients too.
Forward thinking. We want to develop forward-thinking people with a global mindset and an energy and passion for helping clients overcome the challenges they face some of the attributes our clients say they see in KPMG when we are at our best. Across ELLP firms we have established a common framework for developing our partners and have launched a series of new programmes including the Partner Essentials and the Boardroom masterclass programme. For our staff too, we are rolling out a common development agenda. The curriculum is Global and branded the KPMG Business School. The new virtual school has launched in Asia Pacific and launches in Europe in early 2011.
Meeting expectations. We have high expectations of our people and they are right to demand great things of us too. They expect competitive rewards, the opportunity to reach their full potential, the ability to progress in their careers and to work in a respectful environment that reflects the rich diversity of the world around them. We have always paid market-leading rewards for market-leading performance. We continue to reward people for exceptional achievement through our performance related pay system. Assessing individual performance in an open and honest way remains a key feature of the high performance winning culture we are creating. We continue to have one of the most generous performance related bonus pools.
We want to develop forward-thinking people with a global mindset and an energy and passion for helping clients overcome the challenges they face.
Corporate Social Responsibility.
We want our Corporate Social Responsibility programme to have a real and lasting impact. Increasingly that means putting our skills to work in smarter and more sustainable ways.
Corporate Social Responsibility (CSR) is integral to our values and defines the way we go about our business. It is important not only as a responsibility to the communities in which we operate, but is increasingly vital to the long-term commercial success of KPMG Europe LLP. Our people, upon whom we depend, have high expectations of us and want to work for a socially responsible organisation. Furthermore, our clients and suppliers, as well as the community groups we want to work with, demand evidence that we not only say the right things about CSR, but also practice what we preach. In the last three years we have built a strong CSr programme across ELLP firms, concentrating on three key areas voluntary work, charitable donations and protecting the environment. We have exciting programmes running in each of the 16 countries within which ELLP firms operate, and we are making sure that our people can get involved wherever they live and work. We now want to build on these strong foundations and play a lead role in helping business and society overcome the huge sustainability challenges of the future. We can achieve the aims of our CSR programme most effectively when we mobilise our business skills in innovative ways. For this reason we are: ooking for more pro-bono l opportunities where we can contribute our own skills, for instance working together with our community partners to help them achieve their core objectives; and orking more closely than ever with w clients and suppliers to reduce the impact which our collective businesses have on the environment.
within which ELLP firms operate within the next year. Preparatory work has started on this report (under a stakeholder engagement programme) and we have commenced a review of the potential indicators that are relevant to our national businesses. Bright. Our newly launched Bright programme is a case in point. It encourages our people to come up with great ideas to use their skills to help us work better with our community partners to tackle local challenges and work with our international partners in developing countries to support the Millennium Development Goals. We have set challenges for our people which reflect the needs in our local communities. Participants who come up with the brightest ideas are supported by us to implement their winning idea and get the chance to work with our international community partners. For example, some are supporting Fairtrade Africa by providing business training to producers in Kenya and Tanzania. Indeed, we are building on this important relationship with Fairtrade producers in all sorts of ways which involves working with growers in the villages through to using Fairtrade products in our canteens and client dining rooms. Our skills in the community. Our community programmes continue to centre on four main areas education, employability, enterprise and the environment and these are the focus for both our volunteering efforts and cash donations. During the year our cash and in-kind donations totalled a record 15.3 million. More than 6,000 people across ELLP firms contributed some 59,000 hours of time, which is another record investment and reflected a sharp increase in probono activity.
15.3 m
illion
community investment
6,583
volunteers
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voluntary hours
We are one of only 10 international businesses to be awarded Business in the Communitys prestigious Platinum Plus award. This measures our progress in addressing sustainability issues and our leading knowledge and understanding of the challenges we face.
We are committed to producing a sustainability report across the countries
e are very proud that our people in W KPMG UK have now raised more than 1 million for our people charity, the Alzheimers Society, beating our 800,000, two-year target. The Big Blue Bike Ride (linking all the UK offices) alone raised 170,000. KPMG UK staff have also completed six pro-bono projects and 500 partners and staff have worked directly with the charity. Donations by KPMG Germany staff to their chosen charity, Deutsche Kinde-und-Jugendstiftung, reached 137,218. PMG Turkey is supporting university K students from the deprived southeastern region of the country, to help encourage much needed new skills and international investment. PMG firms in Spain and the K Netherlands are concentrating on young people in danger of being socially excluded, working with Norte Joven and the Exit Foundation in Spain and Coach2B in the Netherlands. PMG CIS is supporting a three-year K Early Intervention project in the Nizhny-Novgorod region to improve care services for young children with special needs, which involves working closely with the local health and social security ministries. y the end of this year more than B 150 social market places will have taken place all over Germany. KPMG Germany has supported more than 40 events through organisational support, gifts in kind, pro-bono expertise and promotion. As a result of its work since 2006 in developing social market places in Germany, the German firm along with the Bertelsmann Foundation and RWE, was presented with the federal initiative Germany Land of Ideas award.
Reducing our impact 16.8% reduction in air and car travel Electricity, heating and cooling 3.7% reduction O2 emissions in 2007 were 3.39 tonnes per FTE, C they are now 2.15 tonnes per head
institutes to assess the projects, it has now donated a total of CHF400,000 in grant funding. n Make a Difference Day, 150 O volunteers from KPMG Belgium worked with 12 non-profit organisations. KPMG Luxembourg helped ADA, a nongovernmental organisation, assess micro-finance projects in Africa, Asia and Latin America. PMG UK is building increasingly K strong ties with the new City Academy in Hackney, London opened in September 2009 and supported by 1 million of funding from each of KPMG and the City of London. It is providing leadership and governance support, helping to run an ambitious social enterprise project and our people are acting as personal advisers to students of the City Academy. Greener ways of working. We continue to make steady progress in meeting our environmental targets and our global green ambition is helping us to manage our resources more efficiently. Our ambition was to reduce our CO2 emissions by 25% in 2010 using a 2007 baseline. We are delighted that we actually went much further, achieving a 36.5% net reduction across all of the ELLP firms.
sets local priorities. In Switzerland and Luxembourg, for instance, ELLP firms are promoting car-sharing schemes while in KPMG Germany, where we were among the first to achieve carbonneutral train travel, the onus is on promoting better use of public transport. We continue to work closely with suppliers to make sure they meet our strict ethical and environmental standards. All new contracts over 50,000 are now subject to our Suppliers Code of Conduct, which is based on the UN Global Compact. The ELLP firms together purchase some 700 million of goods and services on terms and conditions which also include our suppliers Code of Conduct. Ready for the future. The debate is changing fast and we are determined to be considered leaders in addressing the challenges that will arise in the future in this area. The implications of the international climate change talks in Mexico in December 2010 may well highlight the complexity of the task facing governments, businesses and communities in building a more sustainable future. The need for action and new thinking is paramount. For that reason our commitment to building an increasingly strong CSR programme and to using our skills in more innovative ways must, and will, remain unchanged.
PMG Switzerland is, by way of the K Our Inspirational Grant, supporting scientific breakthroughs with an While global targets help, many emphasis on entrepreneurial schemes that have a community or environmental environmental issues we face differ from focus. Working with two key technology place to place and each of the ELLP firms
Celebrating World Environment Day in June 2010 we encouraged people across Read about sustainability and the firm to make individual pledges to climate change on page 46. reduce their personal carbon emissions, providing them with clear information on the contribution they were making.
Client focus: Q&A with Yvo de Boer. Forecasting the challenges and opportunities.
Sustainability and climate change.
Having steered 193 countries through the climate change negotiations in Copenhagen, Yvo de Boer has left his role as Executive Secretary of the UNs Framework Convention on Climate Change and now leads our work on sustainability. Here he discusses the challenges that lie ahead, arguing that business can and should be an important agent for change.
Q: Why did you join KPMG from the UN at this time? A: Because I think the international processes on climate change have entered a new era. People can argue about whether Copenhagen was a success or a failure. But the conference has dramatically changed the international landscape. The complex challenge now is implementation. We are confronted with government policies that are relatively unclear, in many instances, but wide ranging in scope. Q: Are you convinced business can be an agent for change in this whole process? A: Yes if only because businesses recognise that the environment around them is changing, in the ecological, social and economic sense. Businesses are looking at risks and opportunities in a more comprehensive way. And that is where KPMG firms have an important role to play. We can help businesses understand the changing environment and its impact on them.
Q: Has the financial crisis pushed sustainability down the political and corporate agenda? A: I divide the sustainability challenge into two categories issues around todays bottom line and those around tomorrows bottom line. On todays bottom line there are huge opportunities for businesses to save energy and to use materials more prudently, which is ultimately an opportunity for cost optimisation. On tomorrows bottom line thats where you need to understand how climate policies, energy prices and consumer demand are going to change over time and how you need to reposition your services. Thats where businesses need support.
Q: How well are KPMG firms doing in helping clients with this challenge? A: Sustainability and climate change is not new to KPMG weve been working on different aspects of this topic for a long time. The challenge now is to link those areas of expertise and to put our huge experience in audit, tax and advisory in the context of the new challenges we face. Q: What do we need from politicians? A: An international architecture to help countries and companies make progress. Many businesses are calling for something that is long, loud and legal. By long they mean a long-term policy perspective. By loud they mean something that expresses a clear and strong ambition and by legal they mean an international context that has credibility and will be abided by. That is an important signal to governments.
Q: Are developing economies better placed to make progress? A: Their overriding concern is economic growth and poverty eradication and they understand that simply following the example of industrialised countries may not be the ideal way to go. It is physically impossible to continue growing China by 8% or 9% a year using the current energy and industry model. To put it another way, Im not so concerned about the 1.5 billion people like you and me who have a pretty decent lifestyle which perhaps needs to be a little more sustainable. What concerns me more is the 5.5 billion people currently living on less than $10 a day who are keen to have a better lifestyle, preferably closer to yours or mine. Within current constraints that is physically impossible to achieve, so we need to start focusing on green growth.
Corporate governance.
We are totally committed to ensuring that we continue to operate at the forefront of good governance. In that respect, KPMG Europe LLP has fully adopted the UK ICAEW Audit Firm Governance Code across the ELLP group even though this is only strictly obligatory for uK firms.
Our group applies high standards of corporate governance which mirrors those standards adopted by our major clients. Our practices are adapted slightly to reflect the fact that the firm is wholly owned by its members who work within the organisation. Our governance structure is laid down in both our Limited Liability Partnership Agreement and the KPMG Europe LLP Governance Provisions. The following sections summarise the roles and responsibilities of the officers and governance committees as defined by these provisions. Further details of the governance arrangements operating within KPMG Europe LLP are set out in the 2010 KPMG Europe LLP Transparency report available online at www.kpmg. eu/annualreport. The Joint Chairmen. KPMG Europe LLP is led by its Joint Chairmen, Rolf Nonnenmacher and John Griffith-Jones. The Joint Chairmen are appointed by the Board but the appointment must be ratified by an ordinary resolution of the partnership. They have both served three years of their initial term of office of five years. The Joint Chairmen are responsible for leading the group. One of the Joint Chairmen currently chairs the Board and the other chairs the Executive Committee.
The Board. The Board of KPMG Europe LLP (the Board) is responsible for ensuring that the group is run in the interests of the members as a whole and in a manner which is in keeping with the standing and reputation of the firm. The Boards responsibilities include setting the groups strategy, overseeing its implementation, considering overall financial performance and solvency, ensuring the maintenance of a sound approach to risk management and internal control and reviewing the effectiveness of such a policy. Details of the Board members, including their background, the term of office that they have served on the Board and the other governance committees on which they serve are in the ELLP Transparency Report.
During the year, the Board comprised the two Joint Chairmen, eight additional officers (being the Chief Operating Officer, and the Heads of Audit, Tax, Advisory*, Markets, Finance & Infrastructure, People and Quality & Risk), and a number of KPMG partners who held non-executive roles for the group. As at 30 September 2010, there were a total of 26 partners on the ELLP Board. The officer roles are appointed by the Board following the recommendations of the Joint Chairmen and are elected for a term of three years, renewable for such a Underneath the Joint Chairmen are six period as the Board sees fit. The nonmain bodies that deal with key aspects executive members are recommended of governance within the group. for appointment by the Nominations Committee in consultation with the Joint These are: Chairmen and are also elected for a term of three years and, if required, can serve the Board for two terms (or in the case of the the Executive Committee non-executive member being a senior partner of one of our operating firms they the Audit Committee may be appointed for the period that he Quality & Risk Committee (formerly they hold that office). t the Risk & Compliance Committee) The Board met nine times in the year to 30 September 2010. the Nominations Committee the Remuneration Committee; and n addition from 1 October 2010 we i have formed a new Public Interest Committee.
* n April 2010, the Head of Advisory retired from the I Board. From 1 October 2010, the Head of Advisory board position was split into three new positions being: Head of Performance & Technology, Head of Transactions & Restructuring and Head of Risk & Compliance.
The Executive Committee. The Executive Committee is responsible for managing the day to day operations of the group. Its responsibilities include recommending policy to the Board, developing and implementing the Business Plan based on the Boards strategic priorities and monitoring operating and financial performance. During 2010 it met 14 times either faceto-face or via video conference. The Audit Committee. The Audit Committee is responsible for monitoring the integrity of the financial statements of the group (including assessing any significant financial reporting judgments contained therein), reviewing internal financial and operational controls, overseeing the internal audit function and monitoring the relationship with the external auditors. The Audit Committee comprised three non-executive Board members and met formally three times in the year to 30 September 2010. The Quality & Risk Committee. The Quality & Risk Committee is responsible for ensuring that a culture of quality and integrity is maintained within the group and where required to act as a sounding board to the Head of Quality & Risk on the policies and procedures relating to professional risk management, ethics and independence, quality control and compliance. The Quality & Risk Committee comprised four non-executive Board members and met six times in the year to 30 September 2010.
The Nominations Committee. The Nominations Committee is responsible for identifying suitable candidates within the group for appointment to the Board, and other key appointments within the group. It reports to the Board or the Joint Chairmen, as appropriate. The Nominations Committee met four times in the year. As at 30 September 2010 there were five members on the Committee, being two non-executive Board members and three non-Board members. The Remuneration Committee. The Remuneration Committee is responsible for making recommendations on policies for partners remuneration, approving the process used by the Executive Committee for determining individual partner remuneration and determines the remuneration of the Joint Chairmen and the members of the Executive Committee. KPMG Europe LLPs policies for partner remuneration take into account a number of factors including quality of work, excellence in client service, growth in revenue and profitability, leadership and living the values of the firm. The Remuneration Committee met five times during the year. The Public Interest Committee. As required by the Audit Firm Governance Code we have appointed three external non-executives (Sir Steve Robson, Tom de Swaan and Dr. Alfred Tacke) who together with effect from 1 october 2010 have formed a new Public Interest Committee for our group. The Committee is responsible for overseeing the public interest aspects of our decision making including the management of reputational risks. Acting in the public interest in this context means having regard to the legitimate interests of clients,
our group applies high standards of corporate governance which mirrors those standards adopted by our major clients.
governments, financial institutions, employees, investors and the wider business and financial community and others relying on the objectivity and the integrity of the accounting profession to support the propriety and orderly functioning of commerce. The Public Interest Committee is also responsible for engaging in a dialogue with our external stakeholders. National firms. The various firms that comprise our group have governance structures appropriate to meet their national laws and regulations. All of the ELLP firms produce transparency reports (even those that are not required to do so by law or regulation). Accordingly, further details of the governance structure of the ELLP firms can be found in the relevant national transparency reports.
Corporate governance continued
Risk Management. The Board has the ultimate responsibility for ensuring that an appropriate system of risk management and internal control operates throughout our group that covers all the key enterprise risks that we collectively face. The enterprise risks that the Board seeks to manage fall into the following main categories: financial risk operational risk; and professional risk.
Responsibility for managing these risks for our group is as follows: Financial risk The Chief Financial Officer (reporting into Head of Finance & Infrastructure). Operational risk The Chief Operating officer. Professional risk the Head of Quality & risk. A risk register, capturing key risks in all categories of enterprise risk, is maintained to help ensure that those with responsibility for corporate governance have a full understanding of all of the key risks facing our group. This register is reviewed annually (initially by the Executive Committee and then at a
joint meeting of the Quality & Risk and Audit Committees) to ensure that all key risks that have been recorded have appropriate mitigating controls in place. The output of this work is ultimately presented to the Board. Our strategy is under the direct control of the Board, which considers and reviews the appropriateness of KPMGs strategy (taking into account the current risk register) both on an ongoing basis and formally annually. Our group operates systems designed to manage rather than eliminate the risk of failure to achieve business objectives which could otherwise be affected by any of these risks. As such, these systems can only provide reasonable
assurance against material misstatement or loss. The Board (either directly itself or through one of its sub-committees) has reviewed the effectiveness of the system of internal controls in operation during the year and is satisfied with its effectiveness. How we deliver engagement quality. Our system of quality controls is designed to meet the expectations of our clients as well as the rules and standards issued by national regulators and professional institutions (including those required by the International Federation of Accountants (IFAC); the Public Company Accounting Oversight Board (PCAOB) and the International Standard of Quality Control No 1 (ISQC1) and any national regulators). The system of quality controls applicable across our group for all of our services encompasses the following key elements: leadership responsibility for quality high ethical standards strong people management igorous procedures for acceptance r and continuance of client relationships and engagements rocesses which deliver effective p engagement performance; and monitoring activities. 1. Leadership responsibility for quality. We recognise the importance of delivering quality services and are committed to doing so. The Board is responsible for setting strategy and has ultimate responsibility for our system of quality control (which is run in accordance with the principles in ISQC1). The Board has determined that a commitment to quality is the most important of its priorities. We recognise that if we do not get the quality of our service and deliverables right, then each and every one of the other objectives in our business plan may be jeopardised.
2. High ethical standards. Our shared values help shape the culture of our group. Our overriding value is that above all we act with integrity. For us integrity means constantly striving to uphold the highest professional standards in our work, providing good quality advice to our clients and rigorously maintaining our independence. Our commitment to professionalism and integrity is also enshrined in the KPMG Code of Conduct (the Code). Our Code sets out KPMGs ethical principles. 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. The Code is underpinned by the core value of integrity. To ensure our independence and objectivity in respect of any client engagement, our firms and their partners and staff must be free from any prohibited financial interest in respect of our clients business and free from any prohibited relationship with our clients. In order to achieve this independence, all firms comply with the independence standards set by IFAC and the SEC (where relevant) as well as any relevant local standards. We have appointed a dedicated Ethics and Independence Partner to help ensure that we apply consistent and rigorous independence policy, processes and tools across our group. 3. Strong people management. One of the key drivers of quality is ensuring that you have the right partners and staff members assigned to an engagement. To help ensure that we recruit and retain the right people, we adopt best practice human resources policies and procedures covering matters such as recruitment, performance evaluation, professional development, compensation and partner admission. In assigning people to specific engagements we evaluate a range of factors including their skill set, professional and industry experience and the nature of the engagement.
4. Rigorous procedures for acceptance and continuance of client relationships and engagements. Rigorous client and engagement acceptance and continuance procedures are important to the ability of our firms to provide quality professional services. Our procedures include performing annual evaluations of the risks associated with working for a particular client including specific evaluations to determine whether or not KPMG is willing and able to provide a specific service to a client. For higher risk clients and engagements, approval is required from local Quality & risk professionals. 5. Processes which deliver effective engagement performance. Our firms have developed standardised tools and methodologies for many of our services. These include functional manuals, work programmes and IT tools and have been implemented to help ensure that our people deliver their services to the required standard. 6. Monitoring activities. Policies and procedures are monitored regularly to ensure continuing relevance and effectiveness. In addition, independent reviews (including reviews of specific engagements) are performed each year to assess the effectiveness of and compliance with the required risk management and quality control policies and procedures. Further details on our quality control procedures are set out in the 2010 ELLP Transparency Report available online at www.kpmg.eu/annualreport.
Board members.
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01. John Griffith-Jones Joint Chairman and UK Senior Partner Home city: London 02. Prof Dr. Rolf Nonnenmacher Joint Chairman and German Senior Partner Home city: Frankfurt am Main 03. Richard Bennison Chief operating officer Home city: London 04. Hubert Achermann Swiss Senior Partner, Chairman of Remuneration Committee and non-executive Board member Home city: Zurich 05. Jeremy Anderson Head of Markets Home city: London
06. Mike Ashley Head of Quality & Risk Home city: London 07. Guy Bainbridge Chairman of Audit Committee and non-executive Board member Home city: London 08. Aidan Brennan4 Head of Performance & Technology Home city: London 09. Jurgen van Breukelen2 Non-executive Board member Home city: Amsterdam 10. Rachel Campbell Head of People Home city: London
11. Simon Collins4 Head of Transactions & Restructuring Home city: London 12. Andrew Cranston3 Russia and CIS Senior Partner and non-executive Board member Home city: Moscow 13. Herman Dijkhuizen2 Dutch Senior Partner and non-executive Board member Home city: Amsterdam 14. Malcolm Edge Non-executive Board member Home city: Manchester 15. Jaap van Everdingen2,5 Head of Finance & Infrastructure Home city: Amsterdam
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26
16. Michael Gewehr Non-executive Board member Home city: Dsseldorf 17. Ernst Grbl4 Head of Tax Home city: Munich 18. Harald von Heynitz Chairman of Nominations Committee and non-executive Board member Home city: Munich 19. Johannes Pastor Non-executive Board member Home city: Munich 20. Karin Riehl3 Luxembourg Senior Partner and non-executive Board member Home city: Luxembourg
21. Jack van Rooijen2 Non-executive Board member Home city: Utrecht 22. Carsten Schiewe4 Head of Risk & Compliance Home city: Hamburg 23. Joachim Schindler Head of Audit Home city: Berlin 24. John M. Scott Spanish Senior Partner and non-executive Board member Home city: Madrid 25. Patrick Simons1 Belgian Senior Partner and non-executive Board member Home city: Brussels 26. Stefan Zwicker Non-executive Board member Home city: Zurich
1 2 3 4 5
Appointed 1 April 2010. ppointed 1 November 2009. A Appointed 1 October 2009. Appointed 1 October 2010. ppointed as Head of Finance & Infrastructure A 1 october 2010
Changes to the Board: ernd Schmid was a member of the Board until his B retirement on 31 January 2010 uc Wygaerts was a member of the Board until his L retirement on 31 March 2010 r. Bernd Erle, Alistair Johnston and Dieter Widmer D were members of the Board until their retirements on 30 September, 27 September and 30 April 2010 respectively ue Bonney, Hans-Jrgen Feyerabend and S Dr. Ashley Steel stepped down as Board members at the end of their elected term on 30 September 2010
Report to the members.
The Board (as set out on pages 52 to 53) submits its report together with the audited consolidated financial statements of KPMG Europe LLP and its subsidiary undertakings (the group) for the year ended 30 September 2010. The report to the members should be read in conjunction with the other sections of this annual report. The financial statements to be filed at Companies House will comprise the group financial statements and the separate financial statements of KPMG Europe LLP. Legal structure. KPMG Europe LLP (the partnership) is incorporated in the United Kingdom as a limited liability partnership (LLP) under the Limited Liability Partnerships Act 2000. It was wholly owned by its members throughout the year. The partnership, which has its headquarters in Frankfurt am Main, Germany, has dual registration: n the UK: registered number I OC324045, registered address 15 Canada Square, Canary Wharf, London, E14 5GL. n Germany (in the commercial register I at the District Court of Frankfurt am Main): registered number HRA 44574, registered address 60439 Frankfurt am Main, Marie-Curie-Strasse 30. At 30 September 2010, the group comprised the following: PMG member firms providing audit, K tax and advisory services in the UK, Germany, Switzerland, Spain, Luxembourg and the Commonwealth of Independent States (CIS, comprising entities in Russia, Ukraine, Armenia, Kazakhstan, Kyrgyzstan and Georgia); he KPMG member firm in the T Netherlands providing audit and advisory services; and ertain entities of the KPMG member C firms in Belgium and Turkey.
The intention of each of the KPMG member firms in these countries when merging with the partnership was that their entire firm should be included within the group. However, for contractual and regulatory reasons, this is not currently possible in certain countries and the audit firm in Belgium and the Turkish firms Audit and Tax entities are therefore wholly excluded from the group whilst certain other entities are not wholly owned by the partnership. In all cases, ELLP has call options to acquire 100% of the share capital of such entities, as set out in note 27. The principal subsidiary and associate undertakings of the partnership are set out in note 27. Details on the governance of the group are set out in the Corporate governance section on pages 48 to 51, which also discusses the groups approach to risk management. Designated members. The designated members (as defined in the Limited Liability Partnerships Act 2000) of the partnership during the year were John Griffith-Jones, Rolf Nonnenmacher, Joachim Schindler and Richard Bennison. Principal activity. The group offers audit and tax services and advisory services, organised through the functions of Transactions & Restructuring, Risk & Compliance and Performance & Technology, across Europe. Strategy. The Chief Operating Officer discusses the groups strategy on pages 6 to 9. Financial performance. As set out above, the groups results cover the KPMG member firms in a number of countries. Some of the entities in these member firms were controlled by the group for the full year ended 30 September 2010 whilst others were members of the group for only various parts of the year. Group revenue was boosted by the completion of mergers and acquisitions during the year as set out in note 9; in particular, mergers with KPMG member
firms in the Netherlands, CIS and Luxembourg had an impact on revenue. Hence, the groups reported revenue of 4,065 million was up 16% compared to the prior year, although on a pro-forma basis which treats all countries as having been in the group throughout both years, revenues fell by 3%. On this proforma basis (which also ignores the impact of exchange rate movements), revenues in the Audit function held up relatively well in challenging market conditions, declining by 7%. Demand for tax services began to recover particularly in the UK as merger and acquisition and pension activity increased, although these improvements were less apparent in other countries; Tax revenues fell by 2%. Our Advisory function matured into three separate functions, better reflecting the skills and services demanded by clients. We now report these three functions providing advisory services Transactions & Restructuring, Risk & Compliance and Performance & Technology. Transactions & Restructuring has faced a challenging market this year across the group with a lack of merger and acquisition activity, declining by 4% on a proforma basis. However, the Restructuring business in the UK has been very busy, which has mitigated the decline. The growth in Performance & Technology, up 17% on a proforma basis, has been driven largely on demand from the financial services sector. Risk & Compliance has achieved a mixed performance across the group, declining by 8% overall; whilst most regions have seen a decline, the UK has achieved good growth largely driven by the performance of its financial risk management and forensic businesses. As required by IFRS, operating profit for the financial year is shown after deduction of members remuneration payable under local employment and service contracts but before all profit shares payable to UK partners. The operating profit of 513 million is, as a consequence, almost entirely denominated in pounds sterling and the increase compared to the previous years 444 million is attributable to the continued provision of services valued by clients whilst keeping costs under tight control in the UK.
KPMG Europe LLP | Annual Report 2010 | 55
Report to the members

continued
Average full-time equivalent headcount of the group on a pro-forma basis for the year was 28,190. This was a fall of 4%, arising in most of the groups operating segments as the firm managed its resources in response to weak demand for services. Performance & Technology was the exception, with headcount increasing as a result of investment initiatives. Net assets and liquidity. The groups statement of financial position at 30 September 2010 includes the assets and liabilities of the groups entities in the UK, Germany, Switzerland, Spain, Belgium, CIS, Luxembourg and the Netherlands; at 30 September 2009, UK, Germany, Switzerland and certain entities in Spain and Belgium. Operations are generally financed by members capital and other reserves, which together totalled 676 million at 30 September 2010. Bank facilities of 515 million are also available to the group, against which 181 million had been drawn at 30 September 2010. Capital is provided by each member on becoming a partner and totalled 139 million at 30 September 2010 (2009: 99 million). The increase reflects a mixture of capital from partners in the Netherlands, CIS, Luxembourg and Turkey and additional capital from partners in existing group countries. Capital is only repayable on retirement or resignation and is therefore relatively stable from year to year. The groups main assets attributed to the client service segments are trade receivables and unbilled amounts for client work. Both categories are monitored monthly at departmental and function levels. The prompt rendering of fees for work done, and collection of the resulting receivables, are important aspects of the groups monitoring of financial risks. These assets attributed to segments, totalled 836 million at 30 September 2010, compared to 726 million at 30 September 2009.
The groups operating activities are normally cash generative, save for investments in property, plant and equipment and intangible assets. Cash outflows are strongly influenced by the timing and amounts of payments in respect of profit shares and bonuses to members and staff. In the year to 30 September 2010, there was considerable investment in the groups infrastructure, reflected in 129 million additions to property, plant and equipment and 19 million to intangible assets. Going concern. The groups business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairmens statement on pages 2 to 5. The financial position of the group, its cash flows and liquidity are discussed above. In addition, note 23 to the financial statements sets out the groups objectives, policies and processes for risks arising from the groups use of financial instruments, in particular its exposure to credit and liquidity risks. The borrowing facilities, together with details of amounts drawn down under these borrowing facilities, are also set out in note 23. The group has considerable financial resources together with well-established relationships with many clients and suppliers across different geographic areas and industries. As a consequence, the Board believes that the group is well placed to manage its business risks successfully. After making enquiries, the Board has a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Board continues to adopt the going concern basis in preparing these financial statements.
Events after the year end. Subsequent to 30 September 2010, the members of ELLP voted to accept the merger into the group of the KPMG member firms in Norway and the Kingdom of Saudi Arabia. At the date of approval of these accounts, however, the related agreements to give legal effect to these mergers had not been completed. In addition, the group acquired two small Belgian companies providing audit services. Further details are given in note 28 to the financial statements. The group also exercised its call options over the KPMG Audit entity in Spain and the KPMG Luxembourg entity providing tax services. Further details are given in note 28. Treasury and risk policies. The groups presentation currency is the euro. The principal functional currencies of the groups operating subsidiaries in the year were the euro, pound sterling, Swiss franc and rouble. The principal treasury risks of the group relate to exchange rate, liquidity and interest full details of the groups policies and management of treasury risks are set out in note 23 to the financial statements. The principal trading risks faced relate to the current uncertain economic position, discussed by the Chief Operating Officer on pages 6 to 9, and the possibility of professional negligence claims, against which the group has a substantial level of insurance cover and extensive risk management policies, as discussed in the Corporate governance section on pages 48 to 51.
Report to the members

continued
Members remuneration. The distributable profits for each accounting period are determined by the Board and are allocated to each member by the Executive Committee. A member may receive income under a contract with a subsidiary company, or as a profit share from the partnership or a subsidiary LLP. Policies on the allocation of profits and drawings, and on members capital, are discussed in note 1 on pages 66 to 67. Creditor payment policy. We agree commercial terms with suppliers (including payment terms) and, if performance accords with these terms, we abide by the agreed payment arrangements. Statement of members responsibilities in respect of the Report to the members and the group financial statements. The members are responsible for preparing the Report to the members and the group financial statements in accordance with applicable law and regulations.
The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (the 2008 Regulations) require the members to prepare group financial statements for each financial year. Under that law the members have elected to prepare the group financial statements in accordance with IFRS as adopted by the EU. Under Regulation 8 of the 2008 Regulations the members must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and of the profit of the group for that period. In preparing these financial statements, the members are required to: elect suitable accounting policies and s then apply them consistently; ake judgements and estimates that m are reasonable and prudent; tate whether they have been prepared s in accordance with IFRS as adopted by the EU; and repare the financial statements on the p going concern basis unless it is inappropriate to presume that the group will continue in business.
Under Regulation 6 of the 2008 Regulations the members are responsible for keeping adequate accounting records that are sufficient to show and explain the partnerships transactions and disclose with reasonable accuracy at any time its financial position and enable them to ensure that its financial statements comply with those regulations. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The members are responsible for the maintenance and integrity of the corporate and financial information included on the groups website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. During the year, these responsibilities were exercised by the Board on behalf of the members.
Report of the independent auditor to the members of KPMG Europe LLP.

We have audited the group financial statements of KPMG Europe LLP for the year ended 30 September 2010 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have reported separately on the parent financial statements of KPMG Europe LLP for the year ended 30 September 2010. This report is made solely to the members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 as applied by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008. Our audit work has been undertaken so that we might state to the members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the partnership and the members as a body for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of members and auditors. The members responsibilities for preparing the report to the members and the group financial statements in accordance with United Kingdom law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of members responsibilities in respect of the Report to the members and the group financial statements. Our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). It is our responsibility to form an independent opinion based on our examination, and to report our opinion to you. In addition we report to you if, in our opinion, KPMG Europe LLP has not kept adequate accounting records, or returns adequate for our audit have not been received from branches not visited by us, or the group financial statements are not in agreement with the accounting records and returns, or if we have not received all the information and explanations we require for our audit. We read other information contained in the annual report and consider whether it is consistent with the audited group financial statements. This other information comprises only the Report to the members and the information on pages 1 to 53. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the group financial statements. Basis of audit opinion. We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements. It also includes an assessment of the significant estimates and judgements made by the members in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the groups circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements. Opinion. In our opinion the group financial statements: ive a true and fair view of the state of g the groups affairs as at 30 September 2010 and of its profit for the year then ended; ave been properly prepared in h accordance with IFRSs as adopted by the European Union; and ave been prepared in accordance h with the Companies Act 2006 as applied by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008.
Stephen P. S. Weatherseed Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 13 December 2010
Consolidated income statement.

for the year ended 30 September 2010.
Millions Euros
Note
2010 m
2009 m
Revenue. Other operating income. Personnel costs. Depreciation and amortisation. Other operating expenses. Operating profit. Financial income. Financial expense. Net financial (expense)/income. Negative goodwill arising in the year. Profit before taxation. Tax expense. Profit for the financial year. Profit for the financial year, attributable to: Members as owners of the parent entity. Non-controlling interests.
3 5 6 11,12 7 8 8
9 10
4,065 156 (2,389) (83) (1,236) 513 96 (106) (10) 503 9 512 (10) 502 501 1 502
3,495 120 (1,948) (52) (1,171) 444 121 (113) 8 452 452 (6) 446 446 446
Consolidated statement of comprehensive income.

for the year ended 30 September 2010.
Millions Euros Note 2010 m 2009 m
Profit for the financial year. Other comprehensive income. Foreign exchange translation differences. Change in fair value of available-for-sale assets. Actuarial losses on defined benefit pension plans. Related tax effect. Other comprehensive income for the year, net of tax. Total comprehensive income for the financial year. Total comprehensive income for the financial year, attributable to:. Members as owners of the parent entity. Non-controlling interests.
502 29 1 (183) 42 (111) 391 390 1 391
446 (74) 3 (164) 21 (214) 232 232 232
21 10
Consolidated statement of financial position.

at 30 September 2010.
Assets. Millions Euros Non-current assets Property, plant and equipment Intangible assets Securities and other investments Deferred tax assets Tax receivable Employee benefits Non-current loans and receivables Current assets Trade and other receivables Amounts due from members Other investments Tax receivable Cash and cash equivalents Total assets Equity and liabilities Other reserves classified as equity, being equity attributable to members, as owners of the parent entity Non-controlling interests Total equity Liabilities Non-current liabilities Employee benefits Amounts due to members Provisions Deferred tax liabilities Other non-current liabilities Current liabilities Short-term bank borrowings Trade and other payables Tax payable Amounts due to members Provisions Members capital Total liabilities Total equity and liabilities Total members interests Members capital Other reserves Amounts due from members Amounts due to members Total members interests
Note
2010 m
2009 Restated m
11 12 13 14 10 21 15
579 108 61 91 12 10 13 874 1,321 152 103 13 309 1,898 2,772
427 88 58 49 14 28 25 689 929 146 96 12 270 1,453 2,142
16 22 17 18
537 (9) 528
589 589
21 22 20 14
254 3 185 18 7 467 181 986 15 417 39 139 1,777 2,244 2,772
105 165 5 9 284 158 749 34 194 35 99 1,269 1,553 2,142
23 19 22 20 22
139 537 676 (152) 420 944
99 589 688 (146) 194 736
The financial statements on pages 58 to 97 were approved by the members on 13 December 2010 and were signed on their behalf by: John Griffith-Jones Joint Chairman Prof. Dr. Rolf Nonnenmacher Joint Chairman
Consolidated statement of changes in equity

at 30 September 2010
Millions Euros
Members other reserves m
Fair value reserve m
Translation reserve m
Total m
Noncontrolling interests m
Total equity m
Balance at 1 October 2008 Total comprehensive income Profit for the financial year Foreign exchange translation differences Change in fair value of available-for-sale assets Actuarial losses on defined benefit pension plans Related tax effect Total comprehensive income Profits allocated to members during the year Other transactions Balance at 30 September 2009 Total comprehensive income Profit for the financial year Foreign exchange translation differences Change in fair value of available-for-sale assets Actuarial losses on defined benefit pension plans Related tax effect Total comprehensive income Profits allocated to members during the year Non-controlling interests acquired on acquisition Dividends paid to non-controlling interests Other transactions Balance at 30 September 2010
855 446 (164) 21 303 (395) (10) 753 501 (183) 42 360 (442) 671
(3) 3 3 1 1 1
(90) (74) (74) (164) 29 29 (135)
762 446 (74) 3 (164) 21 232 (395) (10) 589 501 29 1 (183) 42 390 (442) 537
1 1 (9) (1) (9)
762 446 (74) 3 (164) 21 232 (395) (10) 589 502 29 1 (183) 42 391 (442) (9) (1) 528
Consolidated statement of cash flows

for the year ended 30 September 2010
Millions Euros
Note
2010 m
2009 m
Cash flows from operating activities Profit for the financial year Adjustments for Tax expense Negative goodwill arising in the year Depreciation and amortisation Financial income Financial expense (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Decrease in provisions and employee benefits Cash generated from operations Interest and other financial costs paid Corporate taxes paid Net cash flow from operating activities before transactions with non-salaried members Payments to or on behalf of members without employment or service contracts Net cash flows from operating activities Cash flows from investing activities Cash acquired on business combinations (net of cash paid) Proceeds from sale of property, plant and equipment Interest and other financial income received Dividends paid to non-controlling interests Disposal of investments and securities Acquisition of investments and securities Acquisition of property, plant and equipment Development and acquisition of capitalised intangible assets Net cash flows from investing activities Cash flows from financing activities Short-term bank borrowings Loans advanced Capital introduced by members Capital repayments to members Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents beginning of the year Effects of exchange rate fluctuations Cash and cash equivalents at the end of the year
502 10 9 11, 12 8 8 10 (9) 83 (96) 106 596 (112) 10 (33) 461 (8) (26) 427 (390) 37 122 14 6 (9) (6) (129) (19) (21) (11) 33 (16) 6 22 270 17 309
446 6 52 (121) 113 496 238 (144) (31) 559 (7) (16) 536 (413) 123 2 1 9 29 (131) (31) (121) 63 (17) 14 (7) 53 55 283 (68) 270
9 8
12
22 22
18
Notes
forming part of the consolidated financial statements
1 Accounting policies. KPMG Europe LLP (the partnership) was incorporated in the UK on 17 November 2006 as a limited liability partnership (LLP) under the Limited Liability Partnerships Act 2000. It has its seat in Frankfurt am Main, Germany and is also registered with the Handelsregister, Frankfurt. The consolidated financial statements include the financial statements of the partnership and its subsidiary undertakings (the group). The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by all group entities. A number of amendments and interpretations to International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) as adopted by the European Union (adopted IFRSs) have been endorsed by the European Union with effective dates such that they fall to be applied by the group. Most notably for these financial statements, the following amendments and interpretations to published standards are reflected for the first time: mprovements to IFRSs (issued by the I IASB in May 2008): various effective dates, all of which are mandatory for the year ended 30 September 2010. evised IFRS 3 Business R combinations: effective for periods beginning on or after 1 July 2009. mendments to IAS 27 Consolidated A and Separate Financial Statements: effective for periods beginning on or after 1 July 2009. mendment to IFRS 7 Improving A Disclosures about Financial Instruments: effective for periods beginning on or after 1 January 2009. mprovements to IFRSs (issued by the I IASB in April 2009): various effective dates, some of which are for periods beginning on or after 1 July 2009, others for periods beginning on or after 1 January 2010. The latter have been early adopted in these financial statements.
The amendments to IFRS 3 and IAS 27 are to be applied prospectively and so have been applied in accounting for business combinations occurring during the year ended 30 September 2010 but have had no impact on the accounting for business combinations occurring in prior periods. Additional disclosures in respect of business combinations occurring during the year ended 30 September 2010 have been provided as a result of the amendments (see note 9). It has also been necessary to reclassify a 40 million lease prepayment from noncurrent receivables to property, plant and equipment as the underlying lease now ranks as a finance lease rather than an operating lease, following the amendment to IAS 17 Leases made as part of the Improvements to IFRSs (issued by the IASB in April 2009). As this payment had not been made at 30 September 2008, arising only on legal completion of the property development in April 2009, restatement in 2008 is not relevant and hence no restated information as at 30 September 2008 (as would be required under the Revision to IAS 1 see below) has been presented. The remaining amendments have resulted in a small number of insignificant changes to disclosures given in the groups financial statements but otherwise have had no impact. The group has previously voluntarily adopted the following adopted IFRSs and related amendments and interpretations: FRS 8 Operating segments: voluntarily I adopted in the year ended 30 September 2008. This standard is mandatory only for listed entities and for such entities is mandatory for financial years beginning on or after 1 January 2009. evision to IAS 1 Presentation of R Financial Statements: Revised 2007: early adopted in the year ended 30 September 2009. This standard is effective for financial years beginning on or after 1 January 2009. mendments to IAS 32 and IAS 1 A Puttable financial instruments and obligations arising on liquidation: early adopted in the year ended 30 September 2009. This standard is effective for financial years beginning on or after 1 January 2009.
There are no other adopted IFRSs, amendments or interpretations that require mandatory application. The following amendment and interpretation have been endorsed and will be adopted by the group in the year ending 30 September 2011: mendment to IFRIC 14: Prepayments A of a Minimum Funding Requirement: effective for periods beginning on or after 1 January 2011. evised IAS 24: Related Party R Disclosures: effective for periods beginning on or after 1 January 2011. It is expected that these changes will result in a small number of insignificant changes to disclosures but otherwise have no impact. Basis of preparation. These financial statements have been prepared in accordance with adopted IFRSs. The financial statements have been approved by the members. The financial statements are prepared on the historical cost basis except that all derivative financial instruments and certain other financial instruments are stated at their fair value. The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Judgements made by management in the application of adopted IFRSs 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 2. The functional currency of the partnership and the presentation currency of the group is the euro. The financial statements are presented in millions of euro (m) unless stated otherwise. Basis of consolidation and equity accounting. The bringing together on 1 October 2007 of the KPMG International member firms in Germany and the UK and the subsequent addition of member firms in other countries (see notes 9 and 27) were regarded by the respective countries partners as being mergers of like-minded professional services firms, not involving an acquisition in the normal sense.
Notes
forming part of the consolidated financial statements continued
1 Accounting policies continued. No attempt was made in the merger negotiations to value each firm on an arms length basis, other than for the impact of harmonising accounting policies. However, adopted IFRSs do not permit the possibility of accounting for a business combination as a merger or through the pooling of interests method. Rather, IFRS 3 Business Combinations requires that all cases meeting the definition of a business combination must be accounted for as an acquisition. The creation of the group and subsequent mergers have each contained aspects that meet the definition of a business combination and have therefore been treated as acquisitions. Acquisitions by entities in the group of businesses from third parties also represent business combinations. Subsidiaries are entities controlled by the partnership. Control exists when the partnership has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences to the date that control ceases. Associates are those entities in which the group has significant influence, but not control, over the financial and operating policies. Associates are accounted for using the equity method and are initially recognised at cost. The consolidated financial statements include the groups share of the total comprehensive income and equity movements of associates, from the date that significant influence commences until the date that significant influence ceases.
Business combinations. For business combinations, fair values that reflect conditions at the date of the business combination and the terms of each business combination are attributed to the identifiable assets, liabilities and contingent liabilities acquired. For business combinations achieved in stages, the group revalues its equity accounted investment to the fair value reflecting the conditions at the date of acquisition of the controlling share with any resultant gain or loss recognised in profit or loss. Consideration is measured at the fair value of liabilities incurred by the group to the previous owners. Goodwill is recognised where the cost of the business combination exceeds the total of these fair values. Where the excess is positive, it is treated as an intangible asset, subject to annual impairment testing. Where the excess is negative (referred to in these financial statements as negative goodwill), it is recognised immediately in the income statement. The mergers which formed the group, or have arisen since formation, reflect expectations that future profits arising in the acquired member firms from their existing client contracts and relationships will continue in practice substantially to accrue to the partners in the acquired firms. This is to be contrasted with the groups commercial acquisitions where the purchase results in the acquirer having full access to the profits and cash flows of the entity acquired. Accordingly, in considering the value to be ascribed under each merger to intangible assets in the acquired firm, allowance is made for an arms length assessment of the remuneration of partners in the joining country for their services to the group, as distinct from that part of their total reward estimated to be attributable to a return on the capital they own in the group. Similar assessments of intangible assets arise on commercial acquisitions but without this refinement for partners remuneration. Non-controlling interests arise where the group holds less than 100% of the shares in the entities acquired or, as a result of agreements in place, is entitled to less than 100% of profits or losses arising. Non-controlling interests are measured on initial recognition at their share of the relevant net assets.
Intangible assets have been recognised in respect of customer relationships, framework contracts, order books and similar assets. Each category is amortised over its estimated useful life, as follows: Customer relationships Framework contracts Order book 720 years 24 years 36 months
Foreign currency. Transactions in each entity in currencies other than its functional currency are recorded at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are translated in each entity at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement within financial income or expense, as appropriate. Non-monetary assets that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. For presentation purposes, the revenues and expenses of subsidiary undertakings with a functional currency other than euro are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of transactions. The assets and liabilities of such undertakings, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the year end. Exchange differences arising from this translation are recognised in other comprehensive income in the translation reserve. They are reclassified from equity to profit or loss as a reclassification adjustment when a gain or loss on disposal of the relevant subsidiary is recognised.
Notes
1 Accounting policies continued. Revenue. Revenue represents the fair value of the consideration receivable in respect of professional services provided during the year, inclusive of recoverable expenses incurred on client assignments but excluding value added tax. Where the outcome of a transaction can be estimated reliably, revenue associated with the transaction is recognised in the income statement by reference to the stage of completion at the year end, provided that a right to consideration has been obtained through performance. Consideration accrues as contract activity progresses by reference to the value of work performed. Hence revenue in respect of service contracts represents the cost appropriate to the stage of completion of each contract plus attributable profits, less amounts recognised in previous years where relevant. Where the outcome of a transaction cannot be estimated reliably, revenue is recognised only to the extent that the costs of providing the service are recoverable. No revenue is recognised where there are significant uncertainties regarding recovery of the consideration due or where the right to receive payment is contingent on events outside the control of the group. Expected losses are recognised as soon as they become probable based on the latest estimates of revenue and costs. Unbilled revenue is included in trade and other receivables as Unbilled amounts for client work. Amounts billed on account in excess of the amounts recognised as revenue are included in Trade and other payables. Recoverable expenses represent charges from other KPMG member firms and subcontractors and out of pocket expenses incurred in respect of assignments in progress and expected to be recovered from clients. Taxation For those group entities that are UK LLPs, taxation on all profits is solely the personal liability of the individual members. Consequently neither taxation nor related deferred taxation arising in respect of the partnership (or its subsidiary, KPMG LLP) is accounted for in these financial statements.
All distributions to members of these LLPs are made net of income tax; such amounts retained are paid to the local tax authorities by the entities, on behalf of the individual members, when this tax falls due. These amounts retained for tax are treated in the financial statements in the same way as other profits of the partnership and its subsidiary LLP and so are included in Members other interests or in Amounts due to members depending on whether or not division of profits has occurred. The companies dealt with in the consolidated financial statements are subject to local corporate taxes based on their profits for the accounting period. Tax and any deferred taxation of these companies are recorded in the consolidated income statement or consolidated statement of comprehensive income under the relevant heading and related balances are carried as tax payable or receivable in the consolidated statement of financial position. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, and any adjustment to tax payable in respect of previous years. Deferred tax in subsidiary companies is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at year end. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Financial income and expense Financial income comprises interest and dividend income on funds invested (including available-for-sale financial assets and held-to-maturity investments), discount on property prepayment, expected returns on defined benefit pension plan assets, gains on derivatives recognised in profit or loss, exchange gains and other income. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date that the groups right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Financial expense comprises exchange losses, interest cost on short-term bank borrowings, losses on derivatives recognised in profit or loss, interest cost on defined benefit pension plan liabilities, discount on provisions and other finance costs. All borrowing costs are recognised in the income statement using the effective interest method. Property, plant and equipment. Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Parts of an item of property, plant and equipment having different useful lives are accounted for as separate items. Leases under which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments, assessed at inception of the lease. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Notes
1 Accounting policies continued Depreciation is provided to write off the cost less the estimated residual value of property, plant and equipment and is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Leasehold 999 years land (or life of lease, if shorter) Leasehold 50 years buildings (or life of lease, if shorter) Office furniture, 512 years fittings and equipment Computer and 25 years communications equipment Motor vehicles 5 years The residual value, if not insignificant, is reassessed annually. Intangible assets. Expenditure on research is recognised in the income statement as an expense as incurred. Development expenditure on internally generated software is capitalised if the product or process is technically and commercially feasible and the group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure and software and licences that are acquired by the group and have a finite useful life are measured at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful life of software and licences and of internally generated software is generally five to eight years.
Goodwill, customer relationships, framework contracts and order books are discussed in Business combinations above. Goodwill is stated at cost less any accumulated impairment losses. Customer relationships, framework contracts and order books are stated at cost less accumulated amortisation. Non-derivative financial instruments. Non-derivative financial instruments comprise investments in securities and other investments, trade and other receivables, cash and cash equivalents, loans and borrowings, trade and other payables, members capital and amounts due to and from members. Securities. If the group has a positive intent to hold to maturity securities for which the amounts due are fixed or determinable and have a fixed maturity, then they are considered to be held-to-maturity financial instruments and are classified as noncurrent securities unless due to mature in less than 12 months. These assets are initially measured at fair value, calculated by reference to their quoted bid price. Subsequent to initial recognition, these assets are measured at amortised cost, using the effective interest method, less any impairment losses. Other investments. Other investments held by the group mainly comprise bonds, equities and shares in investment funds. These assets are classified either as available-for-sale or at fair value through profit or loss and are stated at fair value, calculated by reference to their stock exchange price at the year end. Any resultant gain or loss on those assets classified as available-for-sale is recognised in other comprehensive income, in the fair value reserve, except for impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses. When these investments are derecognised, the cumulative gain or loss is reclassified from the fair value reserve to profit or loss. Where these investments are interest bearing, interest calculated using the effective interest rate method is recognised in profit or loss.
Any resultant gain or loss on those assets classified as fair value through profit or loss is recognised in the income statement. Non-current loans and receivables. Non-current loans and receivables are initially recognised at fair value, based upon the estimated present value of future cash flows discounted at the market rate of interest at the year end. Subsequent to initial recognition, noncurrent loans and receivables are recorded at amortised cost. Trade and other receivables. Trade and other receivables (except unbilled amounts for client work) are recognised at fair value, based upon discounted cash flows at prevailing interest rates, or at their nominal amount less impairment losses if due in less than 12 months. Subsequent to initial recognition, trade and other receivables are valued at amortised cost less impairment losses. Short-term bank borrowings. Short-term bank borrowings are recognised at fair value, based upon the nominal amount outstanding. Subsequent to initial recognition, they are recorded at amortised cost. Borrowing costs arising on short-term bank borrowings are expensed as incurred within financial expense. Initial facility fees incurred in respect of bank borrowing facilities are capitalised and amortised over the facility life. Trade and other payables. Trade and other payables are recognised at fair value, based upon the nominal amount outstanding. Subsequent to initial recognition, they are recorded at amortised cost. Cash and cash equivalents. Cash and cash equivalents comprise cash balances and call deposits. The cash and cash equivalents are stated at their nominal values, as this approximates to amortised cost.
Notes
1 Accounting policies continued. Members capital. The capital requirements of the group are determined from time to time by the Board, following recommendations from the Executive Committee. Each member is required to subscribe a proportion of this capital after taking into account any capital already contributed by the member to an LLP or other entity (being a subsidiary of the partnership) of which he is also a member. Hence, members capital of the group represents capital subscribed by members of the partnership to either the partnership or a subsidiary entity. No interest is paid on capital. On leaving the partnership, a members capital must be repaid within two months of the leaving date, unless other arrangements have been agreed between the member and the Executive Committee. Members capital is therefore considered a liability and is stated at its nominal value, being the amount repayable. This classification was reviewed in light of the amendment to IAS 32 and IAS 1 regarding the classification of a puttable financial instrument. However, the terms of members capital do not meet all of the criteria to be met in order to justify classification as an equity instrument and classification as a liability remains appropriate. Amounts due to and from members. Non-current amounts due to members are initially recognised at fair value, based upon the estimated present value of future cash flows discounted at the market rate of interest at the year end. Subsequent to initial recognition, noncurrent amounts due to members are recorded at amortised cost. Current amounts due to and from members are stated at their nominal value as this approximates to amortised cost.
Derivative financial instruments and hedging. The group uses derivative financial instruments to provide an economic hedge against its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the group does not hold or issue derivative financial instruments for trading purposes. The derivative financial instruments used do not satisfy the criteria to be classified as hedging instruments and are treated as financial assets or liabilities held for trading. Derivative financial instruments are recognised at fair value. Those with a positive fair value are classified within Other investments; derivative financial instruments with a negative fair value are classified within Trade and other payables. Attributable transaction costs are recognised in profit or loss when incurred. Subsequent gains or losses on remeasurement of fair value are recognised immediately in profit or loss. The fair value of interest rate swaps is the estimated amount that the group would receive or pay at the year end, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their market price at the year end. Unbilled amounts for client work. Unbilled amounts for client work relate to service contract receivables on completed work where the fee has yet to be issued or where the service contract is such that the work performed falls into a different accounting period. Unbilled amounts for client work are stated at cost plus profit recognised to date (in accordance with the revenue accounting policy above) less provision for foreseeable losses and net of amounts billed on account. Impairment. The carrying amounts of the groups assets (except employee benefit and deferred tax assets) are reviewed at each year end to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated. For goodwill the recoverable amount is estimated at each year end.
The recoverable amount of receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (being the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their fair value less costs to sell and 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 that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. An impairment loss in respect of a financial asset carried at amortised cost or one classified as available-for-sale is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and 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 assets 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. Impairment losses in respect of goodwill cannot be reversed. Leases. Operating lease rentals are charged to the income statement on a straight-line basis over the period of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Notes
1 Accounting policies continued Provisions. A provision is recognised when the group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Provision is made for the present value of foreseeable rental commitments in respect of surplus property, after offsetting any future sub-letting income that could be earned. Surplus property includes premises which will become redundant as a result of steps to which the group is committed. The group has conditional commitments to pay annuities to certain former members (and dependants) of KPMG in the UK. These annuities are payable only out of the profits of KPMG LLP, on which they constitute a first charge. The present value of the best estimate of the expected liabilities for future payments to retired members or their dependants is provided in full, gross of attributable taxation that is deducted by KPMG from payments to annuitants, as a charge against income at the point at which the contractual right arises. Any changes in the provision for former members annuities arising from changes in former members and their dependants or in financial estimates and actuarial assumptions are recognised in the income statement. The unwinding of the discount is presented in the income statement as a Financial expense. The payment of former members annuities is shown as a movement against the provision. A substantial level of insurance cover is maintained in respect of professional negligence claims. This cover is principally written through mutual insurance companies. Premiums are expensed as they fall due. Where appropriate, provision is made for the uninsured cost to the group of settling negligence claims.
Separate disclosure is not made of insured costs and related recoveries on the grounds that such disclosure would be seriously prejudicial to the position of the group in any dispute with other parties. Employee benefits. The group operates various defined contribution pension plans for which the charge for the year represents the contributions payable to the plans in respect of the accounting period. An accrual or prepayment is included in the statement of financial position to the extent to which such costs do not equate to the cash contributions paid in the year. The group also operates several defined benefit pension plans including three closed plans. Two of these plans are closed to new entrants and provide benefits on final pensionable pay whilst the other is closed to new entrants and to current service and provides benefits based on average pensionable pay. The groups net obligations in respect of its defined benefit plans are calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of plan assets (at bid price) is deducted. The liability discount rate is the yield at the year end on AA credit rated bonds that have maturity dates approximating to the terms of each plans obligations. The calculations are performed by qualified actuaries using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement. Actuarial gains and losses are recognised in the period in which they occur, in other comprehensive income. Surpluses are recognised on defined benefit pension plans only to the extent that they are considered to be recoverable by the group, taking account of future service by members of, and contributions payable to, the relevant plan.
Allocation of profits and drawings. The allocation of group profits to those who were members of the partnership during the financial year occurs at the discretion of the Board following finalisation of the annual financial statements. As is permitted by the Limited Liability Partnerships Regulations and the Partnership Agreement, allocated profits may not necessarily represent all the profits arising in a particular financial year, if the Board considers it appropriate to retain profits or to allocate profits previously retained. During the year, members in certain countries receive salary under their separate contracts of employment with subsidiary legal entities and are entitled to bonuses under the same contracts of employment. Members in other countries receive remuneration by rendering charges for their services personally or from a company under their control. Such items are considered to be expenses of the group and are treated as Personnel costs in the income statement. Amounts remaining unpaid at the end of the year in respect of such remuneration are classified as Amounts due to members. During the year, members working within KPMG LLP receive monthly drawings, and from time to time, additional profit distributions. The level and timing of the additional distributions are decided by the Executive Committee, taking into account cash requirements for operating and investing activities. Similarly, drawings or distributions may be paid by the partnership. All such drawings and profit distributions to members represent payments on account of current year profits and are reclaimable from members until profits have been allocated. Any overdistribution of profits during the year is also recoverable from members. Pending the allocation of profits and their division between members, therefore, drawings and on-account profit distributions paid to such members during the year are shown as Amounts due from members. Unallocated profits are shown in Equity as Other reserves. In both cases, necessarily, amounts that may be determined as due from and attributable to members who retired from the partnership or KPMG LLP in the year may be included.
Notes
2 Accounting estimates and judgements. Management have discussed and agreed with the Audit Committee the development, selection and disclosure of the groups critical accounting policies and estimates and the application of these policies and estimates. Key sources of estimation uncertainty. Revenue on service contracts. In calculating revenue on service contracts, the group makes certain estimates as to the stage of completion of those contracts. In doing so, the group estimates the remaining time and external costs to be incurred in completing contracts and clients willingness and ability to pay for the services provided. A different assessment of the outturn on a contract may result in a different value being determined for revenue and also a different carrying value being determined for unbilled amounts for client work. Trade and other receivables. The total carrying amount of trade receivables and unbilled amounts for client work is 1,162 million (2009: 792 million) net of impairment losses on trade receivables and after giving consideration to the clients willingness to pay those amounts accrued in respect of incomplete contracts. A different assessment of the recoverability of either balance may result in different values being determined. Employee benefits. The net defined benefit liabilities of the groups pension plans of 244 million are based on certain assumptions as to mortality (see note 21), based on current published tables, and discount rates reflecting current market trends in each country. If either were to change, there is a risk that there would be further variance in the actuarial gains and losses. In addition, the average expected returns on assets in each plan reflect the anticipated balance in each plans investment portfolio based on current investment decisions. If the investment strategy were to change, there is a risk that there would be further variance between the actual and expected return on assets and hence in the actuarial gains and losses. As all actuarial gains and losses are recognised in these financial statements, the resulting provision for employee benefits may also differ from that disclosed in these financial statements. Increases of 0.25% in the assumed discount rates would reduce the present value of the plans obligations, and hence the net liabilities recognised in the statement of financial position by approximately 55 million. Former members annuities. The group has used certain assumptions in assessing the provision for former members annuities of 66 million as set out in note 20. The assumptions used are based upon the current profile of the former members concerned and currently published mortality tables. If either were to change, the assumptions used in calculating the provision would no longer be appropriate. The resulting variation in the underlying assumptions may result in a value for the provision that is different from that disclosed. Claims. The group from time to time receives claims in respect of professional negligence. It defends such claims vigorously but makes provision for the possible amounts considered likely to be payable, up to the deductible under the groups related insurance arrangements. A different assessment of the settlement prospects of each case, or of the possible cost involved may result in a different provision and cost. Property provisions. Property provisions of 45 million are calculated based on certain assumptions regarding the ability to sub-let the property, specifically the amount of time it may take to sub-let and the rental income that may be obtained. A different assessment of the market conditions and sub-lease income achievable may result in a different value being determined for such provisions. Acquisition accounting. Under IFRS 3, Business Combinations, the acquirer is required to determine fair values (reflecting conditions at the date of the business combination and its terms) for the identifiable assets, liabilities and contingent liabilities acquired. Within such items will be intangible assets reflecting the current value of anticipated income streams from the customer relationships and the open order book of the party acquired. In assessing the value of such items, the group has to make assumptions on matters such as the future profits likely to arise after reflecting charges for the services of the workforce (including the services of those individuals who separately are members of the partnership) and for the use of the KPMG brand, as well as the anticipated period over which benefits from existing customer relationships may endure. A different assessment on these matters may have resulted in a different value being ascribed to the assets and hence to the goodwill capitalised, or the negative goodwill reflected in the income statement. For example, a 5% reduction in the assumed cost of members services would have increased the recognised fair value of intangible assets of the acquired entities by 5 million. A 5% increase in the charge assumed for the use of the KPMG brand would reduce the recognised fair values of intangible assets of the acquired entities by 3 million.
Notes
2 Accounting estimates and judgements continued. Critical accounting judgements in applying the groups accounting policies. Acquisition accounting. IFRS 3, Business Combinations, requires that all cases meeting the definition of a business combination must be accounted for as an acquisition. The creation of the group in 2008 and subsequent mergers each met the definition of a business combination. Hence, fair values must be determined for the identifiable assets, liabilities and contingent liabilities acquired, and for the cost of the acquisition, even though internally these transactions were each regarded as a pooling of interests with no attempt to value each firm on an arms length basis, other than for the impact of harmonising accounting policies (see note 9). Similarly, the basis for co-working with those entities in Belgium and Turkey not controlled by the group, and the precise terms of the related merger documentation, were not drafted to clarify control within the context of the relevant accounting standard. The group has assessed that certain entities fall to be regarded only as associates over which significant influence is exercised and that other entities are subject to neither control nor significant influence, even where these entities constitute integral parts of the operations of the KPMG member firms in these countries. 3 Segmental reporting. Segment information is presented in respect of the groups segments, reflecting the groups principal management and internal reporting structures. The group is managed internally through the functions of Audit, Tax, Transactions & Restructuring (T&R), Risk & Compliance (R&C) and Performance & Technology (P&T) and these are therefore considered as separate operating segments for the purposes of presenting segment information under IFRS 8. T&R, R&C and P&T previously made up one Advisory operating segment and comparative figures have been restated accordingly. The segments are identified for internal reporting purposes according to the nature of services provided; principal services provided by each segment include: Audit:. Tax:. T&R:. Provision of statutory and regulatory attestation services, advice in compliance with changing reporting and regulatory requirements, and non-statutory assurance services. Advice and compliance assistance in relation to tax, remuneration planning and pensions. Deal support from pre-deal evaluation to completion including strategy, due diligence, debt and equity advice, valuations, separation and integration; provision of restructuring and recovery advice, including corporate and personal insolvency; financial advice on public and private transactions including mergers and acquisitions, flotations and valuations. Provision of advice on embedding governance, risk management and internal controls and on compliance with changing regulatory requirements; provision of accounting, investigation and business skills to assist clients involved in contentious financial matters. Advice and support to improve business performance through transforming operations, business intelligence and finance transformation, working capital and cash management, revenue enhancement and cost optimisation, IT enabled transformation, embedding risk and regulatory management and deal services.
R&C:.
P&T:.
Notes
3 Segmental reporting continued. Information by segment is as follows: Segmental reporting 2010. Millions Euros
Audit m Tax m T&R m R&C m P&T m Total m
Gross revenue (as reported internally) Entities not controlled by ELLP Impact of foreign exchange Other financial statements adjustments Total group revenue Segmental contribution (as reported internally) Entities not controlled by ELLP Impact of foreign exchange Members remuneration adjustments Costs not allocated to segments Net financial expense Negative goodwill arising in the year Total group profit before taxation Segmental assets (as reported internally) Entities not controlled by ELLP Impact of foreign exchange Assets not allocated to segments Total assets Segmental reporting 2009 (restated)
1,899
968
732
464
458
696
380
304
150
129
217
255
148
119
97
4,521 (371) 42 (127) 4,065 1,659 (123) 17 (26) (1,014) (10) 9 512 836 (10) 14 1,932 2,772
Audit m
Tax m
T&R m
R&C m
P&T m
Total m
Gross revenue (as reported internally) Entities not controlled by ELLP Impact of foreign exchange Other financial statements adjustments Total group revenue Segmental contribution (as reported internally) Entities not controlled by ELLP Impact of foreign exchange Members remuneration adjustments Costs not allocated to segments Net financial income Total group profit before taxation Segmental assets (as reported internally) Entities not controlled by ELLP Impact of foreign exchange Assets not allocated to segments Total assets
1,758
902
714
453
394
636
320
274
146
120
198
225
136
105
62
4,221 (736) (7) 17 3,495 1,496 (251) (3) 60 (858) 8 452 726 (125) (12) 1,553 2,142
The information reported internally for each of gross revenue, profits and assets includes data for various entities which are not controlled by ELLP within the definition of IAS 27 Consolidated and Separate Financial Statements. Additionally, for entities whose functional currency is not the euro, a fixed exchange rate from their local currency to euros is set at the beginning of each financial year and this rate is used in reporting actual, budget and prior year data, thus eliminating the impact of exchange rate movements: this approach does not comply with IAS 21 The Effects of Changes in Foreign Exchange Rates and a foreign exchange adjustment is required to reconcile to the financial statements. In addition, certain other adjustments are made to revenue reported in the financial statements compared to that reported internally and certain judgements taken in respect of revenue on incomplete contracts may differ for financial statements purposes.
Notes
3 Segmental reporting continued. As discussed in note 1, members in certain countries receive remuneration under employment or service contracts whilst members working within KPMG LLP have no contractual right to remuneration until profits are allocated to them. Internal reporting therefore includes a notional charge for UK members, intended to equate to a salary equivalent, whilst members remuneration in other countries reflected in internal reporting excludes bonus payments. Costs not allocated to segments represent the costs of central support and infrastructure such as property and IT costs, marketing, training and other general overhead expenses (including depreciation, amortisation and other non-cash items). These are not directly controllable by the segments and are not allocated to them in the groups internal reporting. Allocation of such items to the segments would involve subjective assessments and it is not therefore considered appropriate. Assets attributed to the segments for internal reporting purposes comprise trade receivables and unbilled amounts for client work. All other assets, including non-current assets, balances with members and cash are controlled centrally and are not allocated across segments. There is no internal reporting of liabilities by segment; hence no segmental disclosures are given. The reflection of entities not controlled by ELLP and the impact of foreign exchange adjustments, the move to five segments and certain revisions to the allocation of costs between segments and central costs all represent changes to the internal presentation of segmental information compared to that applying in 2009. Comparative figures have been restated accordingly. Geographical disclosures. Revenue from external clients and non-current assets (excluding deferred tax assets, employee benefits and investments held-tomaturity) by geographical segment are as set out below. Both revenue and non-current assets relate to entities situated in each country. Geographical segment
Revenue Millions Euros 2010 m 2009 m Non-current assets 2010 m 2009 m
United Kingdom Germany Netherlands Other countries Intercountry eliminations The groups results for financial statements purposes include:
1,843 1,187 436 728 (129) 4,065
1,834 1,241 472 (52) 3,495
551 65 33 84 (44) 689
450 71 50 (30) 541
KPMG member firms in UK, Germany, Switzerland 2010: full year; 2009: full year; ertain entities of the KPMG member firm in Spain 2010: full year, entities providing tax and advisory services, and three months, C entity providing audit services; 2009: full year, entities providing tax and advisory services; Certain entities of the KPMG member firm in Belgium 2010: full year; 2009: six months; KPMG member firm in the Netherlands providing audit and advisory services 2010: 11 months; 2009: nil; PMG member firm in Luxembourg 2010: full year, entity providing tax services, and seven months, entities providing audit and K advisory services; 2009: nil; PMG member firm in the Commonwealth of Independent States (CIS, comprising entities in Russia, Ukraine, Armenia, Georgia, K Kazakhstan and Kyrgyzstan) 2010: eight months; 2009: nil. See note 9 for further details regarding acquisition dates. Major clients. The group has no reliance on any one client no more than 1.6% (2009: 1.4%) of group revenue is attributable to the largest client.
Notes
4 Pro-forma information. The following data provides pro-forma information, presented as if the group had existed in its form at 30 September 2010 through the two years ended on that date that is, including KPMG Luxembourg, KPMG CIS, KPMG Netherlands and the relevant entities in Belgium and Spain throughout. Pro-forma revenue and growth rates (at constant exchange rates) by national sub-group for the year ended 30 September 2010 were:
Millions Euros 2010 m %
United Kingdom Germany Netherlands Other countries Inter-country eliminations These pro-forma revenues and growth rates (at constant exchange rates) can be analysed by function as follows:
Millions Euros
1,843 1,187 477 914 (141) 4,280
(4) (8) 4 (3)
2010 m
Audit Tax T&R R&C P&T
1,787 865 716 455 457 4,280
(7) (2) (4) (8) 17 (3)
On a pro-forma basis, as if the group had existed through the two years ended 30 September 2010, average full-time equivalent headcount would have been 28,190 (2009: 29,266) a fall of 4%. Market-industry revenues. Pro-forma revenue by market-industry is given below, with growth rates compared to 2009 on constant exchange rates:
Millions Euros 2010 m %
Consumer & Industrial Markets Financial Services Infrastructure, Government & Healthcare Information, Communications & Entertainment Private Equity
1,469 1,259 971 451 130 4,280
(8) 4 (1) (17) 20 (3)
5 Other operating income. Included in other operating income are the following items:
Millions Euros 2010 m 2009 m
Charges to other KPMG International member firms Support cost charges to non-group KPMG entities within ELLP countries Rental income Other items
44 35 21 56 156
45 31 11 33 120
Notes
6 Members and other personnel. The average numbers of members (being those who are members of the partnership) and other personnel of the group during the year were as follows:
2010 Full-time equivalent 2009 Full-time equivalent
Millions Euros
Members Other personnel The average numbers of members and other personnel by function were as follows:
1,362 24,451 25,813
1,114 19,783 20,897
Millions Euros
2010 Full-time equivalent
2009 Full-time equivalent
Audit Tax T&R R&C P&T Central
9,942 5,005 2,668 2,481 2,260 3,457 25,813
6,965 4,987 2,835 1,907 1,492 2,711 20,897
The aggregate employment costs of personnel are set out below. These include those costs of members receiving salary and bonuses under contracts of employment or service contracts with subsidiary entities but exclude amounts in respect of members receiving an allocation of profit of the partnership or KPMG LLP. Employment costs
Salaries (including bonuses) Social security costs Cost of employee benefits (note 21) Personnel costs per income statement Net financing cost charged to the income statement in respect of defined benefit pension plans Amounts recognised in the statement of comprehensive income in respect of defined benefit pension plans Total personnel related costs
2,104 178 107 2,389 3 183 2,575
1,717 141 90 1,948 2 164 2,114
7 Other operating expenses. Other operating expenses include property and IT costs, marketing, training and other general overhead expenses, together with direct expenses incurred on client assignments. Also included in other operating expenses are impairment losses on trade receivables of 5 million (2009: 8 million). Amounts totalling 220,000 were payable to the group auditors, Grant Thornton, for audit services, in respect of the partnership and the consolidated financial statements (2009: 270,000). A further 856,000 (2009: 636,000) was payable to the group auditors and 66,000 (2009: 57,000) payable to other auditors in respect of subsidiary entities financial statements. In addition, the group auditors received 36,000 (2009: 45,000) for the audit of certain of the group pension plans. The group auditors and their associates did not provide any non-audit services during either year.
Notes
Financial income and expense.

Expected return on defined benefit pension plan assets (note 21) Discount on property prepayment Interest income on bank deposits Net change in fair value of financial assets at fair value through profit or loss Interest income on held-to-maturity securities Interest income on available-for-sale financial assets Exchange gains Other financial income Financial income Interest on defined benefit pension plan liabilities (note 21) Discount on provisions (note 20) Interest expense on short-term bank borrowings Exchange losses Other financial costs Financial expense
73 1 3 2 2 14 1 96 (76) (6) (3) (16) (5) (106)
73 7 5 5 2 27 2 121 (75) (5) (3) (24) (6) (113)
The total interest income for financial assets that were not classified as fair value through profit or loss was 5 million (2009: 7 million). The total interest expense for financial liabilities that were not classified as fair value through profit or loss was 3 million (2009: 3 million). 9 Business combinations. The detail set out below provides information required under IFRS 3 Business Combinations for those mergers and acquisitions occurring during the year ended 30 September 2010. If the mergers and acquisitions set out below had each occurred on 1 October 2009, consolidated revenue and profit would have been 4,280 million and 502 million respectively. Mergers. Mergers year ended 30 September 2009. During the year ended 30 September 2009, the partnership acquired all the shares in certain entities in the KPMG member firms in Spain and Belgium. As for previous mergers within the group, these mergers met the definition of a business combination under IFRS 3 and were presented as acquisitions by the partnership. Summary details of those mergers are as follows: pain: the partnership paid 4 million, satisfied by 1 million members capital in the partnership and 3 million cash, in exchange S for net identifiable assets, liabilities and contingent liabilities of 4 million. elgium: the partnership paid 2 million, satisfied in members capital in the partnership, in exchange for net identifiable assets, B liabilities and contingent liabilities of (5) million. Goodwill of 7 million arose on the acquisition of entities in Belgium (see note 12). all options were granted over shares in the entities in Spain and Belgium providing audit services and entities in Belgium providing C tax and accounting services: these options were not yet exercisable in 2009. Mergers year ended 30 September 2010. During the year ended 30 September 2010, the group continued with its strategy of merging with other member firms within the KPMG International network so as to benefit from synergies to be obtained in enhanced client service delivery and cost efficiency. Specific details regarding assets and liabilities acquired and consideration paid are set out below, but certain aspects of the mergers were consistent in each case: ith the exception of Turkey (see (c) below), the mergers each met the definition of a business combination under IFRS 3 and are W therefore presented as acquisitions by the partnership. owever, the financial arrangements agreed amongst the members in respect of each merger do not fall easily within the H considerations that IFRS 3 requires be applied to commercial acquisitions. In particular, although the partnership in most cases has the power to determine how the profits of each of its subsidiary national firms are to be distributed, members will in practice continue to be largely remunerated from the profits arising in the country in which they are based. This will be as salaries or bonuses under their local contracts of employment or service contracts or, in the UK and for any future countries whose structure is that of a partnership, as profit shares, with no differentiation made between remuneration for services to the group and return on capital subscribed.
Notes
9 Business combinations continued. Mergers. Mergers year ended 30 September 2010. hares in entities acquired were exchanged for members capital or similar instruments and, from the date of acquisition, the S partners in the entities acquired therefore became members of the partnership and had an ownership interest in the partnership. The fair value of the members interests is equal to the amount contributed, as a result of the following attributes: he levels of capital take no account of the value of, and in particular the amount of any goodwill inherent in, the member firm T involved and attract no possibility of capital appreciation. n leaving the firm, members receive no compensation for the value of the firm, or any inherent goodwill, sold at the date of O retirement, nor for any increase in this value or inherent goodwill that might be attributed to their efforts on the firms behalf; they are rather repaid the same amount originally contributed as capital. ndividuals promoted to member, or joining from outside at that level, are required to contribute a pre-defined sum as capital at an I amount that is the same for all individuals in each group member country. all options have been granted over certain shares but are not yet exercisable. However, no value is attributed to these options as the C cost to the group of exercising these options does not change over time, nor does the fair value of the assets of the entities being acquired, since profits (or losses) generated between the date of the mergers and the date of exercising the options will accrue to the partners in each country. Hence although the options fall to be treated as derivative instruments, they have negligible fair value. re-acquisition carrying amounts have been determined from accounts of each acquired entity as at the date of acquisition under P applicable adopted IFRSs. The values of assets, liabilities and contingent liabilities recognised on acquisition are their estimated fair values which approximated to their pre-acquisition carrying amounts in nearly all cases. The following fair value adjustments were considered for each merger: ntangible assets for the current value of anticipated income streams resulting from customer relationships, framework contracts I and order books. This calculation (in accordance with the accounting policies in note 1) reflects charges for the use of the KPMG brand (assessed against comparable publicly available data for entities in the service industries), for the workforce and working capital of the entities acquired (net of applicable taxes) and a charge for the services of equity partners which excludes their estimated return on capital. It assumes an appropriate future average churn rate for customer relationships, normally of 10 years. The resulting cash flows were discounted to current values using an estimated weighted average cost of capital. o value is ascribed to use of the KPMG brand in any country as neither the partnership nor the entity acquired controls these rights. N air value reviews were carried out on a number of other liabilities, including contingent liabilities for unrecognised professional F negligence claims, and on assets, including the carrying value of contingent fee assignments. here negative goodwill arises, this is normally attributable to undistributed reserves. Positive goodwill is normally attributable to W the skills and knowledge of the work force and the synergies expected to be achieved from integrating the acquired entity, which are not assets recognisable under adopted IFRSs. a) Netherlands. On 28 October 2009, the partnership obtained control over KPMG NV, the parent company for the KPMG International member firm providing audit and advisory services in the Netherlands (KPMG Netherlands). The separate KPMG International member firm providing tax services in the Netherlands, KPMG Meijburg & Co, was not involved. Consideration was in the form of depository receipts, financial instruments that rank as current liabilities of the group alongside other members capital, totalling 20 million. The merger had the following effect on the groups assets and liabilities at acquisition:
Pre-acquisition carrying amounts m Fair value adjustments m Recognised on acquisition m
Millions Euros
Property, plant and equipment Intangible assets Trade and other receivables Other receivables Cash and cash equivalents Trade and other payables Provisions Net identifiable assets, liabilities and contingent liabilities Attributable to non-controlling interests Goodwill on acquisition Consideration paid, satisfied in the form of depository receipts
23 104 23 62 (180) (12) 20
9 9 (9) 9
32 9 104 23 62 (189) (12) 29 (9) 20
Notes
9 Business combinations continued. a) Netherlands continued. The trade receivables are net of impairment provision of 5 million for those receivables that were expected to be uncollectable at the acquisition date. Amounts attributable to non-controlling interests are based on the fair values of the net assets acquired. Revenue and profit after taxation of 436 million and 1 million respectively for the 11 months ended 30 September 2010 are included within these consolidated financial statements in respect of KPMG Netherlands. b) CIS, Luxembourg and Spain. In addition, the group merged with the KPMG member firm in the Commonwealth of Independent States (CIS, comprising Russia, Ukraine, Armenia, Georgia, Kazakhstan and Kyrgyzstan) (KPMG CIS). The partnership obtained control over the entities within KPMG CIS on 4 February 2010, acquiring the following: 100% of entities operating in Georgia, Kazakhstan and Kyrgyzstan; 49% and 100% of two entities operating in Russia; 50% of an entity operating in Armenia; 100% and 30% of two entities operating in Ukraine. Where less than 100% of shares are held, the remaining shares are held by local partners as a result of local legislative requirements with call options granted to the group (but not currently exercisable). In each case, the partnership nevertheless has the right to control these entities under the agreements in place and they are considered to be subsidiaries under IFRS. The non-controlling interests in KPMG CIS were valued at 2 million at the acquisition date based on the fair values of the net assets acquired. This value represents the fair value of those interests at the acquisition date which is based on the terms set out in the agreements. Whilst the non-controlling interests are entitled to a share of the capital of these entities, they do not have rights to a share in profits post-acquisition. Furthermore, the group merged with the KPMG member firm in Luxembourg. The merger completed on 6 November 2009, the partnership acquiring the following: 0% of the entity providing tax services. The partnership also has exercisable options over the remaining 50% of the shares. 5 The entity is therefore considered to be a subsidiary under IFRS from 6 November 2009. 9% of the entities providing audit and advisory services. The partnership later exercised its options to acquire the remaining 4 51% of the shares following enactment in Luxembourg of the EU 8th Directive. In this case, the partnership is not considered to have had control prior to the exercise of the options on 22 February 2010 and so the entity is considered to have been an associate of the group until that date. The non-controlling interest of 50% of the entity providing tax services was valued at 1 million at the acquisition date based on the fair value of the net asset acquired. This value represents the fair value of the interest at the acquisition date which is based on the terms set out in the agreement. Whilst the non-controlling interests are entitled to a share of the capital of this entity, they do not have rights to a share in profits post-acquisition. At the date of acquisition of the remaining 51% of the entities providing audit and advisory services, the fair value of the equity interest was nil which was also its equity accounted value at that date. In July 2010, the EU 8th Directive was enacted into Spanish law. The partnership had been granted call options in 2009 over all the shares in KPMG Auditores SL, the company within KPMG Spain which provides audit services. Following the legislative change, these options became immediately exercisable and hence this company fell to be treated as a subsidiary from that date. The options were not in fact exercised during the year and hence the group accounts reflect a negative non-controlling interest of 100% of this company, valued at 12 million, being the net liabilities of the company at the date at which the company became a subsidiary.
Notes
9 Business combinations continued. These transactions had the following effect on the groups assets and liabilities on acquisition:
Preacquisition carrying amounts m Recognised Fair value on adjustments acquisition m m
Millions Euros
Property, plant and equipment Intangible assets Deferred tax assets Trade and other receivables Other receivables Cash and cash equivalents Trade and other payables Short-term bank borrowing Deferred tax liabilities Other payables Net identifiable assets, liabilities and contingent liabilities Attributable to non-controlling interests Negative goodwill on acquisition Consideration paid, being members capital
31 1 137 4 62 (135) (25) (6) (81) (12)
17 (5) 12
31 17 1 137 4 62 (135) (25) (11) (81) 9 (9)
The trade receivables are net of impairment provision of 9 million for those receivables that were expected to be uncollectable at the acquisition date. Amounts attributable to non-controlling interests are based on the fair values of the net assets acquired, and represent (12) million in respect of KPMG Auditores, 2 million in respect of KPMG CIS and 1 million in respect of KPMG Luxembourg. Revenue and profit of 253 million and nil respectively is included within these consolidated financial statements in respect of KPMG CIS, KPMG Luxembourg and KPMG Auditores SL. c) Turkey. Also during the year, the KPMG member firm in Turkey (KPMG Turkey) merged with ELLP. However, the partnership is not permitted to own shares in the existing entities within KPMG Turkey as a result of local regulatory constraints. Instead, the partnership has call options over 100% of the shares, exercisable only in the event that local law is changed, but is considered to have significant influence over the entities under the agreements in place. Hence, these entities are considered to be associates under IFRS, albeit with a nil shareholding. In acquiring those call options, the group assumed certain liabilities in respect of an external loan payable by the entities in Turkey. Hence, the call options have a carrying value equivalent to this loan payable, being 1 million. In addition, a new entity has been set up in Turkey, in which the partnership holds 100% of the shares, and through which it is intended that new advisory work will be provided. This entity had not commenced trading at 30 September 2010. Acquisitions. During the year, KPMG UK acquired 100% of the shares in two UK companies providing advisory services, Analitica Limited and KPMG IT Advisory Limited (then called DNV Global IT Services Limited) for consideration of 2 million and 0.3 million respectively. Intangible assets of 2 million relating to customer relationships were recognised in accounting for these acquisitions.
Notes
10 Tax expense. Group companies are subject to a variety of income taxes based on their taxable profits at rates between 25% and 34%. Limited liability partnerships, however, are not subject to taxation; rather their members are subject to personal income tax, mainly in the UK, which is a personal liability of the members individually. The tax expense recognised in the income statement is analysed as follows:
Current tax expense Current year Adjustment in respect of prior years Deferred tax expense/(credit) (note 14) Compensation payment to be received from members of KPMG LLP Total tax expense in income statement
16 1 2 19 (9) 10
20 1 (5) 16 (10) 6
Corporation tax charges in the UK arise largely as a result of the impact of UK transfer pricing legislation. The compensation payment is a payment made by the members of KPMG LLP in order to compensate the UK subsidiaries for this increased corporation tax charge. The group is required under IAS 12 Income taxes to present the following tax reconciliation in respect of group profits:
Profit before taxation Less profit arising in limited liability partnerships, on which tax is payable by the members personally Profit before taxation arising in group companies Tax at 30% (2009: 30%) being the average rate of corporate taxes levied on the profits of group companies UK corporation tax arising on UK transfer pricing arrangements Impact of tax exempt items, including negative goodwill and differences between profits under adopted IFRSs and profits under local tax legislation, net of relevant deferred tax Taxes payable by subsidiary undertakings Compensation payment to be received from members of KPMG LLP Total tax expense in income statement The tax credit recognised in the statement of comprehensive income is as follows:
Millions Euros
512 (473) 39 12 9 (2) 19 (9) 10
452 (431) 21 6 10 16 (10) 6
2010 m
2009 m
Net change in fair value of available-for-sale financial assets Actuarial gains and losses on defined benefit pension plans
(42) (42)
1 (22) (21)
Included in non-current assets is tax receivable of 12 million (2009: 14 million) which represents the current value of tax refunds in Germany, receivable over seven years.
Notes
11 Property, plant and equipment.

Land and buildings (restated) m Computer and communications equipment m Office furniture, fittings and equipment m
Millions Euros
Motor vehicles m
Total (restated) m
Cost Balance at 1 October 2008 Acquisition of subsidiaries Additions Disposals Exchange movements Balance at 30 September 2009 Acquisition of subsidiaries Additions Disposals Exchange movements Balance at 30 September 2010 Depreciation and impairment Balance at 1 October 2008 Charge for the year Disposals Exchange movements Balance at 30 September 2009 Charge for the year Disposals Exchange movements Balance at 30 September 2010 Net book value At 1 October 2008 At 30 September 2009 At 30 September 2010
307 (10) 297 10 (10) 18 315 1 1 297 314
63 3 20 (10) (6) 70 16 18 (10) 3 97 45 15 (10) (5) 45 19 (10) 2 56 18 25 41
141 4 38 (24) (15) 144 36 108 (23) 8 273 58 20 (24) (7) 47 29 (21) 1 56 83 97 217
15 4 (3) (2) 14 1 3 (4) 14 6 3 (2) (1) 6 3 (2) 7 9 8 7
219 7 369 (37) (33) 525 63 129 (47) 29 699 109 38 (36) (13) 98 52 (33) 3 120 110 427 579
Land and buildings at 30 September 2010 relate entirely to the groups new leasehold premises at 15 Canada Square, London; following the amendment to IAS 17 Leases, all the leasehold interests, including land, at Canada Square fall to be classified as a finance lease, since it has a term of 999 years and so represents the majority of the useful economic life of the asset. Hence, the prepayment of 40 million made under this lease in April 2009 has been reclassified from non-current receivables (see note 15). The net book value of assets owned under a finance lease was 314 million (2009: 297 million). Additions to office furniture, fittings and equipment relate largely to the fit-out of this new building. Included in other payables is 3 million, the final payment under the finance lease, which is payable in October 2010.
Notes
12 Intangible assets.
Customer relationships and Goodwill similar items m m Interally Purchased generated software software and licences m m
Millions Euros
Total m
Cost Balance at 1 October 2008 Acquisition of subsidiaries Additions Disposals Exchange movements Balance at 30 September 2009 Acquisition of subsidiaries Additions Disposals Exchange movements Balance at 30 September 2010 Amortisation Balance at 1 October 2008 Charge for the year Disposals Exchange movements Balance at 30 September 2009 Charge for the year Disposals Exchange movements Balance at 30 September 2010 Net book value At 1 October 2008 At 30 September 2009 At 30 September 2010 7 7 7 7 7 6 4 (3) 7 28 (15) 20 3 (3) 17 (15) 2 6 7 18 82 2 31 (12) (10) 93 14 (10) 4 101 27 10 (12) (3) 22 9 (10) 21 55 71 80 3 2 5 5 (4) 6 1 1 2 5 (4) 3 2 3 3 91 15 31 (15) (10) 112 28 19 (29) 4 134 28 14 (15) (3) 24 31 (29) 26 63 88 108
Internally generated software mainly comprises components of the SAP-based ERP system, which have remaining amortisation periods of six to eight years (2009: seven to eight years). Goodwill was generated on the merger with certain entities of the KPMG member firm in Belgium (see note 9). The recoverable amount of the goodwill has been determined using the value in use basis; the recoverable amount is based on the anticipated profits to be generated by these entities, assuming growth rates reflecting past experience but adjusted to reflect current market conditions. No goodwill impairment arises. 13 Securities and other investments. The net book values of securities and other investments held by the group were as follows:
Fixed income securities Shares in investment funds Other investments
44 13 4 61
43 12 3 58
Included within other investments is 0.5 million (2009: 0.5 million) representing the groups share of net assets of associates (see note 27).
KPMG Europe LLP | Annual Report 2010 | 81 Annual Report 2010 | 81 Report 2010 | 81
Notes
14 Deferred taxes. Recognised deferred tax assets and liabilities relating to the following assets and liabilities were:
Assets Millions Euros 2010 m Liabilities 2010 m Assets 2009 m Liabilities 2009 m
Assets Non-current assets Intangible assets Property, plant and equipment Other non-current assets Current assets Trade receivables Receivables for unbilled services Securities Liabilities Non-current liabilities Pensions and similar obligations Other provisions Current liabilities Other provisions Other liabilities Offsetting Offset of tax losses available to be carried forward Balance at 30 September
(4) (2) (3) (3) (17) (1)
(2) (2) (3) (1) (13) (1)
89 16 6 (24) 2 91
(1) (4) (7) 24 (18)
47 15 7 (24) 1 49
(1) (5) (1) 24 (5)
Deferred tax assets have not been recognised in respect of tax losses totalling 25 million (2009: 7 million). Movements during the year were:
Acquired during the year m Deferred tax credit/ (expense) m Credit/ (charge) recognised in equity m
Millions Euros
Opening balance m
Closing balance m
Assets Non-current assets Intangible assets Property, plant and equipment Other non-current assets Current assets Trade receivables Receivables for unbilled services Securities Liabilities Non-current liabilities Pensions and similar obligations Other provisions Current liabilities Other provisions Other liabilities Offset of tax losses available to be carried forward Total
1 (2) (3) (1) (13) (1)
(5) (3) 2
2 1 (6)
(2) (2) (3) (3) (17) (1)
47 14 (5) 6 1 44
(6) 1 (11)
1 1 (1) (2)
42 42
89 15 (4) (1) 2 73
Notes
15 Non-current loans and receivables.

Millions Euros 2010 m 2009 Restated m
Loans Other non-current receivables
4 9 13
21 4 25
In 2009, a 40 million property prepayment relating to the lease over land at 15 Canada Square, London was classified as a non-current receivable. This has been reclassified to property, plant and equipment following the amendment to IAS 17 Leases (see note 11). 16 Trade and other receivables.
Trade receivables Unbilled amounts for client work Other prepayments Other receivables Amounts owed by other KPMG International member firms
779 383 81 51 27 1,321
536 256 58 44 35 929
Group trade receivables are shown net of impairment losses amounting to 27 million (2009: 18 million); the movement for the year is recognised in Other operating expenses. An aged analysis of overdue trade receivables and movement in the allowance for impairment in respect of trade receivables is given in note 23. Trade and other receivables are due within 12 months. 17 Other investments.
Bonds Shares in investment funds Fixed income securities Equities Derivative financial assets
44 30 14 14 1 103
39 29 14 14 96
18 Cash and cash equivalents.

Short-term deposits Bank balances Cash and cash equivalents 19 Trade and other payables.
Millions Euros
203 106 309
233 37 270
2010 m
2009 m
Accruals Amounts billed on account Other taxes and social security Other payables Trade payables Amounts due to other KPMG International member firms Included in accruals are amounts payable to personnel (excluding members) in respect of bonuses.
509 183 123 106 45 20 986
408 137 79 72 33 20 749
Notes
20 Provisions.
Obligations to employees Property (other than provisions pensions) m m
Millions Euros
Annuities m
Other m
Total m
Balance at 1 October 2009 Acquisition of subsidiaries Utilised during the year Transfers Income statement: Provisions made during the year Provisions released during the year Unwinding of discounted amounts Exchange differences Balance at 30 September 2010 Non-current Current
57 (4) 7 3 3 66 62 4 66
38 5 (3) 4 1 45 35 10 45
41 6 (26) 5 22 3 51 51 51
64 1 (5) 10 (11) 3 62 37 25 62
200 12 (38) 5 43 (11) 6 7 224 185 39 224
The provision for former members annuities reflects conditional commitments to pay annuities to certain former members (and dependants) of KPMG LLP or its predecessor partnership, and is recorded gross of basic rate tax (see note 1). The provision for former members annuities is expected to be utilised as follows:
Within 12 months of the year end Between one and five years Between five and fifteen years In more than fifteen years
4 15 26 21 66
4 14 22 17 57
The principal actuarial assumptions used in assessing the provision for former members annuities are that increases in annuities payable follow the retail prices index as this is the specific obligation set out in the underlying commitment (2010: 3.35%; 2009: 3.25%) and that, after application of mortality rates, the resulting amounts are discounted at 4.95% (2009: 5.6%). The mortality tables used for the former members annuities provision at both 30 September 2010 and 2009 were consistent with those applied in respect of the UK defined benefit pension plans (see note 21). Property provisions represent the cost of office space which is not currently used by the group or will become redundant as a result of steps to which the group is committed. The net obligation under such leases has been provided for. Property provisions of 10 million (2009: 1 million) will be utilised within 12 months and the balance is expected mainly to be utilised within the next five years. Obligations to employees mainly comprise obligations arising in Germany from part-time early retirement working arrangements which are expected to be utilised within four to eight years. Other provisions include assessments of possible amounts payable in respect of certain operational risks but also reflect provisions in respect of negligence claims brought against the group by third parties. Where appropriate, provision is made for the uninsured cost (including related legal costs) to the group of settling negligence claims. Separate disclosure is not made of insured costs and related recoveries on the grounds that such disclosure would be seriously prejudicial to the commercial interests of the group. These provisions are expected mainly to be utilised within five years.
Notes
21 Employee benefits. The cost of employee benefits included within personnel costs for the year was:
Contributions to defined contribution pension plans Current service cost for defined benefit pension plans Cost of employee benefits
77 30 107
62 28 90
The net financing cost of 3 million (2009: 2 million) relating to defined benefit pension plans is also considered to be a part of the net cost of employee benefits. The closing net assets and liabilities in respect of employee benefits were as follows:
Assets Millions Euros 2010 m 2009 m Liabilities 2010 m 2009 m
Capitalised value of reinsurance policies Capitalised value of risk insurance policies UK defined benefit plans German defined benefit plans Swiss defined benefit plans
2 8 10
2 8 18 28
(147) (87) (20) (254)
(93) (12) (105)
The capitalised value of pension-related risk insurance policies relates to claims against an insurance company which provides cover under certain risk insurance policies for certain employees. On the death of an employee before reaching pensionable age, KPMG AG is obliged to pay pre-defined lump sums to surviving dependants. The insurance company reimburses KPMG AG for all such payments made. The reimbursable amounts are recognised as an asset at the level of the corresponding liability which is reflected in the defined benefit obligation below. Defined contribution pension plans. The group has two defined contribution pension plans operated in the UK: the stakeholder pension plan; and the KPMG Staff Pension Fund post-April 2000 fund, which is closed to new entrants. The charge for the year for these plans represents those contributions payable to them in respect of the accounting period. The group also has a defined contribution plan operated in the Netherlands. This plan is open to all employees. The charge for the year represents those contributions payable in respect of the accounting period. Employers contributions paid in Germany under state social security legislation are made to separate legal entities which manage such contributions and payments to current and future pensioners. Because KPMG AG has no future obligation to make good any shortfalls in the funding of these entities beyond these fixed contributions, these payments meet the definition in IAS 19 of contributions to a defined contribution pension plan and so fall to be disclosed above. In Belgium, contributions are paid by each KPMG entity to insured pension schemes under terms that permit these schemes also to be treated as defined contribution plans. Group entities in Spain, Luxembourg and CIS do not operate any pension plans. No contributions to the defined contribution pension plans were outstanding at the end of either financial year. Defined benefit pension plans. The group has several defined benefit pension plans. For disclosure purposes, these are grouped geographically. Defined benefit pension plans in the UK. There are two defined benefit pension plans in the UK. The KPMG Staff Pension Fund pre-April 2000 fund (the pre-2000 fund) is a plan closed to new entrants and to current service, providing benefits based on average salary. Contributions from members were paid up to 1 April 2000. The groups contributions are agreed between the group and the trustee based on advice from the independent actuary, Hewitt Bacon & Woodrow, derived from triennial valuations using the attained age method; an agreed funding plan is in place.
Notes
21 Employee benefits continued The KMG Thomson McLintock Pension Scheme (the TMcL plan) is a defined benefit plan, closed to new entrants, providing benefits based on final pensionable pay. The plan is contributory for members and the groups contributions are the balance of the cost of providing the benefits; contributions payable are agreed between the group and the trustee based on advice from the independent actuary, Hewitt Bacon & Woodrow, derived from triennial valuations using the attained age method. Defined benefit pension plan in Germany. A defined benefit pension plan is operated in Germany covering employees in substantially all the German entities. The plan, which is closed to new entrants, provides benefits based on final pensionable pay and is non-contributory for members. No pre-defined amounts are set for the groups contributions. Defined benefit pension plan in Switzerland. A pension plan is operated in Switzerland which falls to be treated as a defined benefit pension plan. The plan provides for either a lump sum payment on retirement or a pension, computed after taking account of the Swiss state social security pension. Although the pension provided is a predetermined percentage of the accumulated fund for each member of the scheme and the contributions of both employee and employer are pre-defined (varying with seniority within the firm, age and the class of membership), the group is liable for the cost of intervening interest and accordingly the plan ranks as a defined benefit plan under IAS 19. Defined benefit pension plans valuation and disclosure. Valuations of the defined benefit pension plans have been provided on an IAS 19 basis as at 30 September 2010 and 2009 by KPMG professionally qualified in-house actuaries in the UK and by independent external actuaries in Germany and Switzerland. The principal actuarial assumptions (expressed as weighted averages) used for the valuations were as follows: Actuarial assumptions.
UK plans 2010 percent 2009 percent German plan 2010 percent 2009 percent Swiss plan 2010 percent 2009 percent
Discount rate Future salary increases* Increase in pensions in payment** Inflation
4.95 4.35 3.30 3.35
5.60 4.25 3.20 3.25
4.25 3.00 1.70 3.00
5.50 3.00 1.70 3.00
2.55 1.50 1.30
3.35 1.50 0.10 1.30
* Not relevant for the UK pre-2000 fund. ** For the UK, this relates to post-April 1997 service only there are no increases in pensions in payment for pre-April 1997 service. The expected return on the plans assets was 6.2% (2009: 6.3%) for the UK plans, 4.6% (2009: 5.0%) for the German plan and 3.6% (2009: 4.0%) for the Swiss plan, the differences reflecting the different mix of asset investments in each plan as detailed below and reflecting different market rates of return in each country. The expected rates of return on plan assets are determined by reference to relevant indices. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the plans investment portfolios. All plans have been valued using mortality assumptions which retain prudent allowance for future improvement in longevity. The mortality tables used for the UK plans at both 30 September 2010 and 2009 were PNXA00 projected by year of birth for both current and future pensioners, with an allowance made for future improvements via the medium cohort effect and a mortality improvement floor (1.25% for males, 0.75% for females). The German and Swiss plans at both 30 September 2010 and 2009 used UK PXA92 tables with an allowance for the short cohort effect. These tables lead to life expectancies for a pensioner retiring today at age 60 of 25.4 to 27.7 years (males) and 28.3 to 29.4 years (females), and for a pensioner retiring at age 60 but now aged 45 of 26.2 to 29.7 years (males) and 29.0 to 30.6 years (females).
Notes
21 Employee benefits continued. The fair values of the plans assets, which are not intended to be realised in the short-term and may be subject to significant change before they are realised, and the present value of the plans liabilities, which are derived from cash flow projections over long periods and thus are inherently uncertain, were: Plan assets and liabilities.
UK plans Millions Euros 2010 m 2009 m German plan 2010 m 2009 m Swiss plan 2010 m 2009 m
Equities Corporate and Government bonds Hedge funds Property Cash and cash equivalents Capitalised value of reinsurance policies Fair value of plans assets Present value of funded defined benefit obligations Present value of net (obligation)/surplus being the net (liability)/asset in the statement of financial position
385 130 58 3 576 (723) (147)
361 141 2 504 (597) (93)
84 321 148 72 625 (712) (87)
288 244 70 602 (584) 18
102 159 34 26 321 (341) (20)
85 133 29 22 269 (281) (12)
Movements in the present value of the funded defined benefit obligations for the plans were as follows:
At 1 October Current service cost Interest on obligations Actuarial losses Benefits paid Employee contributions Exchange movements At 30 September
(597) (1) (35) (71) 18 (37) (723)
(536) (1) (33) (121) 17 77 (597)
(584) (11) (31) (113) 27 (712)
(521) (10) (32) (47) 26 (584)
(281) (18) (10) (12) 29 (10) (39) (341)
(245) (17) (10) (11) 23 (10) (11) (281)
The total current service costs of 30 million (2009: 28 million) are recognised in Personnel costs in the consolidated income statement. The total interest on obligations of 76 million (2009: 75 million) is charged to the income statement within Financial expense. Movements in the fair value of the plans assets were as follows:
At 1 October Expected return on plan assets Actuarial gains/(losses) Benefits paid Contributions by employers Employee contributions Exchange movements At 30 September
504 33 18 (18) 8 31 576
524 32 30 (17) 7 (72) 504
602 28 (11) (27) 33 625
578 29 (10) (25) 30 602
269 12 6 (29) 16 10 37 321
249 12 (5) (23) 15 10 11 269
The total expected return on plan assets of 73 million (2009: 73 million) is recognised in Financial income in the consolidated income statement. The actual return on the plans assets was 51 million (2009: 62 million) for the UK plans, 17 million for the German plan (2009: 19 million) and 18 million for the Swiss plan (2009: 7 million).
Notes
21 Employee benefits continued. Actuarial gains/(losses) recognised in the year may be analysed as follows:
Actuarial gains/(losses) on obligations Actuarial gains/(losses) on assets
(71) 18 (53)
(121) 30 (91)
(113) (11) (124)
(47) (10) (57)
(12) 6 (6)
(11) (5) (16)
Actuarial gains and losses arise as a result of a change in assumptions or represent experience adjustments. Actuarial gains and losses are recognised in the statement of comprehensive income in the period in which they occur. Cumulative net actuarial losses reported in the statement of comprehensive income since 1 October 2004, the transition date to adopted IFRSs, are 186 million (2009: cumulative losses of 3 million). The history of experience gains and losses while the relevant entities have been within the group is as follows:
UK plans Millions Euros 2010 m 2009 m 2008 m 2007 m 2006 m 2010 m German plan 2009 m 2008 m 2010 m Swiss plan 2009 m 2008 m
Present value of the defined benefit obligation Fair value of plans assets Present value of net surpluses/ (obligations) Experience gains and (losses) arising on plans liabilities Experience gains and (losses) arising on plans assets
(723) 576 (147) 8 18
(597) 504 (93) 30
(536) 524 (12) 9 (141)
(678) 707 29 3 18
(772) 681 (91) (15) 25
(712) 625 (87) 4 (11)
(584) 602 18 7 (10)
(521) 578 57 (2) (7)
(341) 321 (20) 10 6
(281) 269 (12) (11) (5)
(245) 249 4 n/a n/a
Other matters. The group expects to contribute approximately 51 million to its defined benefit pension plans in the next financial year. Apart from these contributions, there were no other transactions between the group and the pension plans during the year. Contributions of 2 million (2009: 2 million) were outstanding in respect of the Swiss plan at the end of the financial year. Because taxation in LLPs is a personal liability of the individual members, no deferred tax on the UK pension plan balances falls to be recorded in the group financial statements. However, deferred tax assets of 84 million in respect of the German plans obligations (2009: 44 million) and 5 million in respect of the Swiss plan (2009: 3 million) are reflected in the group financial statements, as shown in note 14. The assets of the UK defined benefit plans are held separately from those of the group, administered by AON Trust Corporation Limited as independent trustee. Non-current assets of the German pension plan have been transferred to KPMG Pension Trust e.V. and KPMG Partner Vermgensverein e.V. The assets of the Swiss defined benefit plan are held within independent pension foundations. The assets of the groups defined contribution plans are held by independent trustees.
Notes
22 Equity, members capital and other interests. Equity includes members other reserves comprising certain amounts retained from profits arising in previous years pending their allocation to members. Other movements in members other reserves mainly represent compensation amounts payable to UK subsidiary undertakings for corporation tax liabilities (see note 10). Equity also includes the fair value reserve arising on the revaluation of available-for-sale assets, and translation reserves, being those exchange differences arising on the translation of non-euro subsidiaries. Movements in members capital are as follows:
Millions Euros m
Balance at 1 October 2008 Capital introduced by members Capital allocated in respect of acquisitions Repayments of capital Exchange movements Balance at 30 September 2009 Capital introduced by members Capital allocated in respect of acquisitions Repayments of capital Exchange movements Balance at 30 September 2010 Members other interests comprise amounts due (to)/from members as follows:
Millions Euros 2010 m
97 14 2 (7) (7) 99 33 20 (16) 3 139
2009 m
Amounts due from members Amounts due to members: non-current Amounts due to members: current Amounts due from members relate to drawings and on-account profit distributions paid to members of UK LLPs.
152 (3) (417) (268)
146 (194) (48)
Amounts due to members that are classified as current liabilities relate to tax withheld from allocated profits for members of UK LLPs and contractual amounts due to members in other group entities. Amounts due to members that are classified as non-current liabilities relate to partner loans. In the event of a winding up of an LLP, amounts due to members may be set-off against amounts due from members but such balances (and members capital) rank after other unsecured creditors. The amounts payable to members from the member firms in other countries would rank either in preference to unsecured creditors or alongside unsecured creditors on a liquidation of those entities. 23 Financial instruments. Financial instruments held by the group arise directly from its operations. Members capital and amounts due to and from members also fall to be treated as financial instruments. The main purpose of these financial instruments is to finance the operations of the group. It is, and has been throughout the period under review, the groups policy that no trading in financial instruments shall be undertaken. The group has exposure to market risk, credit risk and liquidity risk arising from its use of financial instruments. This note presents information about the groups exposure to each of the above risks and the groups objectives, policies and processes for measuring and managing risk. The Board has overall responsibility for the establishment and oversight of the groups risk management framework. The groups risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the groups activities. The group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Further quantitative disclosures are included throughout these consolidated financial statements.
Notes
23 Financial instruments continued. a) Market risk. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the groups income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The group uses derivatives on a case-by-case basis in order to manage market risks. The group does not hold or issue derivative financial instruments for trading purposes. Interest rate risk. The group faces interest rate risks from investing and financing activities. The positions held are closely monitored by the Treasury function and proposals are discussed to align the positions with market expectations. Use of interest rate options or swaps is considered but no such derivatives were in fact entered into during the year. Exchange rate risk. The functional currency of the partnership is the euro. The functional currencies of each of its subsidiaries are assessed individually and are considered mainly to involve the euro, pound sterling, Swiss franc or rouble. However, certain expenses and charges from other KPMG International member firms or other international relationships are denominated in currencies other than the functional currency of each entity. In addition, some fees are rendered in other currencies where this is requested by the clients involved. The group maintains currency cash balances and uses currency swaps or forward foreign exchange contracts in order to cover exposure to existing foreign currency receivables and payables and also to committed future transactions denominated in a foreign currency. In respect of other monetary assets and liabilities denominated in foreign currencies, the group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. Equity price risk. Equity price risk arises from fair value through profit or loss equity securities. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by at least one Board member or the Chief Financial Officer. The primary goal of the groups investment strategy is to maximise investment returns; management is assisted by external advisors in this regard. In accordance with this strategy certain investments are designated at fair value through profit or loss because their performance is actively monitored and they are managed on a fair value basis. (b) Credit risk. Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the groups receivables from clients, securities and other investments. Trade and other receivables. Exposure to credit risk is monitored on a routine basis and credit evaluations are performed on clients as appropriate. The group does not require security in respect of financial assets. The groups exposure to credit risk is influenced mainly by the individual characteristics of each client. Credit risk is monitored frequently, with close contact with each client and routine billing and cash collection for work done. The group establishes allowances for impairment that represent its estimate of incurred losses in respect of trade and other receivables and investments. This allowance comprises a specific loss component that relates to individually significant items, and a collective loss component. This component is established for groups of similar assets in respect of losses that have been incurred but not yet identified and is determined from historical data in each country of payment statistics for similar financial assets updated for current economic conditions. Securities, other investments and derivatives. Cash investments are made only in liquid securities, mainly fixed-term deposits or Government or high-quality corporate bonds, and are monitored regularly. Derivatives are concluded with high quality counterparties only and are monitored regularly.
Notes
23 Financial instruments continued. b) Credit risk continued. The maximum exposure to credit risk is represented by the carrying amount of the groups financial and other assets as set out in the table below.
Trade receivables Bank balances and cash deposits Amounts due from members Non-current loans and receivables Other receivables Amounts owed by other KPMG International member firms Loans and receivables Available-for-sale: shares in investment funds Held-to-maturity: fixed income securities Bonds Equities Derivatives Fair value through profit and loss Total financial assets Unbilled amounts for client work Impairment losses. The ageing of receivables that were overdue at the reporting date was:
Gross Impairment 2010 2010 m m
779 309 152 13 51 27 1,331 43 58 44 14 1 59 1,491 383 1,874
536 270 146 25 44 35 1,056 41 57 39 14 53 1,207 256 1,463
Millions Euros
Gross 2009 m
Impairment 2009 m
Trade receivables Overdue 130 days Overdue 31180 days More than 180 days
107 125 38 270
3 24 27
59 79 28 166
3 15 18
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 October Acquisition of subsidiaries Impairment loss recognised Impairment loss reversed Exchange differences Balance at 30 September There are no significant impairment provisions against other financial assets.
18 14 5 (11) 1 27
14 2 8 (5) (1) 18
Notes
23 Financial instruments continued. c) Liquidity risk. Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The groups approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when they fall due without incurring unacceptable losses or risking damage to the groups reputation. The focus of the groups treasury policy is to ensure that there are sufficient funds to finance the business. Surplus funds are invested according to the assessment of rates of return available through the money market or from bonds or equities. The Treasury department monitors the groups significant cash positions daily and it is the groups policy to use finance facilities or to invest surplus funds efficiently. Limits are maintained on amounts to be deposited with each banking counterpart and these are reviewed regularly in the light of market changes. The group has access to committed overdraft and revolving credit facilities which are drawn down as required. The group has the following non-derivative financial liabilities, measured at amortised cost:
Accruals Amounts due to members (current and non-current) Short-term bank borrowings Members capital Other payables Trade payables Amounts due to other KPMG International member firms Other non-current liabilities
509 420 181 139 106 45 20 7 1,427
408 194 158 99 72 33 20 9 993
The groups only financial liability that is interest bearing arises in respect of the short-term bank borrowings (see below). Hence, the contractual cash flows in all cases equal the carrying amount. Trade payables and accruals, amounts due to other KPMG International member firms and amounts due to members current are repayable within one year. As set out in the accounting policies, members capital is repayable within two months of each members leaving date. Other non-current liabilities, including non-current amounts due to members, are repayable within two to five years. Committed borrowing facilities of 515 million (2009: 503 million) were available at 30 September 2010 to the group. Actual amounts drawn were 181 million (2009: 158 million). Of these facilities, 20 million (2009: 68 million) expires in one year or less, revolving credit facilities of 466 million (2009: 396 million) expire in four years and 29 million (2009: 39 million) had no fixed expiry date. Although the revolving facilities expire in four years, the short-term bank borrowings drawn from time to time under the facilities usually have a maximum term of three months. The availability of these facilities was dependent on certain conditions, including a minimum level of members capital, all of which were satisfied at 30 September 2010 and 2009. The revolving credit facility is secured on the lease of 15 Canada Square, London; the remaining facilities are unsecured. Certain of these facilities are available to all entities within KPMG Belgium, including those not consolidated within the group. d) Interest rate risk. The financial assets and liabilities of the group are non-interest bearing, with the exception of the following:
Fixed rate instruments Securities Bonds Loans Variable rate instruments Short-term bank borrowings Bank balances and cash deposits Loans
58 44 4 106 (181) 309 128
57 39 6 102 (158) 270 15 127
Notes
23 Financial instruments continued d) Interest rate risk continued. Cash flow sensitivity analysis for variable rate instruments. A change of 100 basis points in interest rates during the year would have increased or decreased profit by 1 million (2009: 2 million). This analysis assumes that all other variables, in particular foreign currency rates, remain constant. e) Exchange rate risk. As set out above, the subsidiaries of the group trade in their functional currencies and so do not generally have material receivable and payable balances denominated in non-functional currencies. However, at 30 September 2010, the group had balances totalling the equivalent of 23 million (2009: 7 million) in US dollars and 22 million (2009: 2 million) in euros. The group had no material payables denominated in non-functional currencies at either 30 September 2010 or 2009. A 5% movement in either the US dollar or euro closing exchange rates would have increased or decreased profit by 2 million. The net bank balances and cash deposits in non-functional currencies were 17 million (2009: 16 million) in US dollars, 3 million (2009: nil) in Swiss francs and nil (2009: 1 million) in euro. There were open forward foreign exchange contracts at 30 September 2010 to sell US$2 million in exchange for pound sterling and to buy US$12 million in exchange for euro (2009: to sell US$6 million in exchange for pound sterling and to buy US$17 million in exchange for euro). In addition there were open swap contracts at 30 September 2010 to sell Swiss franc 25 million in exchange for euro (2009: to sell Swiss franc 27 million in exchange for euro). The fair value of these contracts at 30 September 2010 was 0.5 million (2009: (0.2) million). The following significant exchange rates applied during the year:
Average rate 2010 2009 Reporting date spot rate 2010 2009
Pound sterling Swiss franc US dollar Rouble
0.8694 1.4286 1.3565 40.7349
0.8750 1.5139 1.3529 n/a
0.8581 1.3286 1.3652 41.7550
0.9100 1.5086 1.4662 n/a
f) Equity price risk. The only financial assets which are considered to be exposed to equity price risk are equity securities, totalling 14 million (2009: 14 million). The call options to acquire certain entities (see note 9) are not subject to equity price risk as the cost to the group remains unchanged over time, as does the value of net assets to be acquired. g) Fair values. The estimated fair values of the groups financial assets and liabilities approximate their carrying values at 30 September 2010 and 2009, largely owing to their short maturity. The bases for determining fair values are disclosed in note 1. The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: evel 1: quoted prices (unadjusted) in active markets for identical assets and liabilities; L evel 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (for L example, as prices) or indirectly (for example, derived from prices); Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 1 m Level 2 m Level 3 m Total m
30 September 2010 Shares in investment funds Bonds Equities Derivatives 30 September 2009 Shares in investment funds Bonds Equities There have been no transfers between Level 1 and 2 during the year.
43 44 14 101 41 39 14 94
1 1
43 44 14 1 102 41 39 14 94
Notes
24 Operating leases. The groups total commitments under non-cancellable operating leases are as follows: Non-cancellable operating lease rentals.
Within one year Between one and five years More than five years
159 499 473 1,131
117 315 304 736
A number of office facilities are leased under operating leases. The periods of the leases vary; lease payments are generally subject to rent review every five years in the UK but normally are fixed in other countries. Operating lease disclosures.
Amounts receivable from sub-let properties: within one year within two to five years Operating lease cost for the year in Other operating expenses Operating lease income for the year in Other operating income
14 29 166 21
8 8 111 11
The group also leases certain computer equipment, office equipment and motor vehicles under operating leases. These leases typically run for a period of three years. 25 Commitments and contingencies. Capital commitments for contracted purchases of property, plant and equipment at the end of the financial year, for which no provision has been made, were 12 million (2009: 9 million) for the group. These commitments are expected to be settled in the following financial year. During the year, the group entered into a contract with a third party, for the establishment of an outsourced data centre in Germany. This data centre will be constructed over 15 months to December 2011, for use initially by the member firms in the UK and Germany. The group has committed to pay 112 million under the contract over the course of the next seven years. The partnership has issued a guarantee of US$10.5 million (7 million) to the bank providing loan facilities to the groups associated entities in Turkey.
Notes
26 Related parties. The group has a related party relationship with its key management , considered to be the Board members of the partnership (pages 52 to 53). Transactions with key management. The 29 (2009: 24) members of the Board during the year are responsible for planning, directing and controlling the activities of the group. They are all members of the partnership. Those members of the Board who are members of KPMG LLP share in its profits; both the partnership and KPMG LLP divide profits amongst members only after the financial statements have been finalised and approved by members. Other members of the Board are entitled to remuneration and performance bonuses under employment or service contracts with other subsidiary entities. The estimated total salaried remuneration, performance bonuses and profit entitlement due to the key management in respect of the current year totalled 51 million for the group. The actual salary, bonus and profit allocated in respect of the previous year was 39 million. The estimated cost of short-term employment benefits provided to the key management was 0.2 million for the year (2009: 0.2 million) and the estimated current service pension cost was 0.6 million (2009: 0.5 million). There were no balances due to or from key management at 30 September 2010 or 2009 save in respect of relevant shares of profit (or related taxation), performance bonuses and members capital. As discussed in note 1, members of the LLPs receive monthly drawings and other distributions representing payments on account of current year profits. These amounts are classified as Amounts due from members until allocation of the current year profits. In addition, performance bonuses and amounts that are retained from allocated profits in respect of taxation liabilities that fall on individual members are classified as Amounts due to members and are expected to be paid in the short-term. Amounts outstanding from/(to) key management are as follows:
Amounts due from key management Amounts due to key management
3 (19) (16)
3 (15) (12)
Total members capital invested during the year held by key management amounted to 2.9 million at 30 September 2010 (2009: 2.5 million). A member of key management during the year held a controlling interest in KPMG Rechtsanwaltsgesellchaft GmbH (RAG), the separate KPMG member firm in Germany, providing legal services, which is not controlled by the partnership. The group provides resources and support services to RAG, the value of which is immaterial from a group perspective. Cooperatie KPMG U.A. (the Co-operative) is an entity registered in the Netherlands, through which the Dutch partners provide their services to KPMG Netherlands. Transactions with the Co-operative totalled 75 million during the year. 72 million was outstanding as amounts payable to the Co-operative at 30 September 2010 and as these amounts are ultimately due to the Dutch members, the balance was classified as Amounts due to members.
Notes
27 Subsidiary and associated undertakings. At 30 September 2010 the principal subsidiaries and associates of the group were as follows:
Subsidiary undertakings Incorporated in Principal activity
Percent of ordinary shares
KPMG Armenia cjsc KPMG Advisory CVBA KPMG LLP KPMG Audit Plc KPMG United Kingdom Plc KPMG UK Limited KPMG CIS Limited KPMG Limited Queen Street Mutual Company PCC Limited KPMG AG Wirtschaftsprufngsgesellschaft KPMG Audit LLC KPMG Tax and Advisory LLC KPMG Bishkek OOO KPMG Advisory Srl KPMG Audit Srl KPMG Tax Srl KPMG Accountants NV KPMG Advisory NV KPMG NV ZAO KPMG KPMG Auditores SL KPMG Abogados SL KPMG Asesores SL KPMG SA KPMG AG/SA KPMG is ve Yonetim Danismanligi AS CJSC KPMG Audit KPMG Ukraine Limited
Associate undertakings
Armenia Belgium England England England England Guernsey Guernsey Guernsey Germany Kazakhstan Kazakhstan Kyrgyzstan Luxembourg Luxembourg Luxembourg Netherlands Netherlands Netherlands Russia Spain Spain Spain Spain Switzerland Turkey Ukraine Ukraine
Audit, tax and advisory services Advisory services Audit, tax and advisory services Statutory audits and related services Advisory services Employment company Audit, tax and advisory services in Georgia Tax and advisory services in Russia Insurance Audit, tax and advisory services Audit services Tax and advisory services Audit, tax and advisory services Advisory services Audit services Tax services Audit services Advisory services Support services Audit, tax and advisory services Audit services Tax services Advisory services Support services Audit, tax and advisory services Advisory services Audit services Tax and advisory services
502,4 100 1001 1002 1002 1002 1002 1002 1003 100 1002 1002 1002 1002 1002 502,4 1002 1002 1002 492,4 nil4 100 100 100 1002 100 302,4 1002
KPMG Belastingconsulenten en Juridische Adviseurs CVBA Akis Bagimsiz Denetim ve SMMM AS Yetkin SMMM AS Yetkin YMM AS
Belgium Turkey Turkey Turkey
Tax and legal services Audit and advisory services Bookkeeping services Tax services
49 nil nil nil
1 Percentage of voting rights held. 2 Held indirectly through intermediate holding companies. 3 KPMG LLP has a 100% interest in the net assets of this company through its right to control the Board and because no other party has any entitlement to benefit from future profits or to existing retained reserves. 4 Exercisable options over 100% held.
Notes
27 Subsidiary and associated undertakings continued. All of the subsidiary undertakings make up their accounts to 30 September and are consolidated within these financial statements. The associate undertakings also make up their accounts to 30 September. All entities operate principally in their country of incorporation, save where noted. Whilst the partnership does not own majorities in the share capital of KPMG Auditores SL (Spain), ZAO KPMG (Russia), KPMG Armenia cjsc (Armenia), CJSC KPMG Audit (Ukraine) and KPMG Tax Srl (Luxembourg), these entities are nevertheless considered to be subsidiaries of the group under IFRS since the agreements in place give the partnership the right to control, taking account of exercisable options and the fact that the entities have each signed up to the KPMG ELLP operating protocol. The partnership does not own any shares in three of the trading entities in Turkey. However, the partnership has call options to acquire 100% of the shares, exercisable if local legislation is changed such that the partnership may acquire the shares. Under the agreements in place between KPMG Turkey and ELLP, the partnership is considered to have significant influence and therefore, the entities are considered to be associates of the group. The partnership holds call options over those shares in the Belgian tax practice which it does not currently own, over the entity providing audit services in Belgium and over entities in Turkey; none of these options are currently exercisable and they are considered to have an insignificant fair value. Summarised financial information in respect of the associates of the group is as follows:
Assets Liabilities Revenues Profit 28 Events after the year end. Subsequent to 30 September 2010 the following events took place:
24 21 54 2
16 14 11
a) Luxembourg and Spain. The group exercised its options over the 50% shares in the KPMG Luxembourg entity providing tax services and over 100% shares in the KPMG Spain entity providing audit services that it did not previously hold at a cost of 0.2 million. b) Belgium. In November 2010, the partnership acquired 99.9% of the shares in KPMG & Partners BVBA, a Belgian company providing audit services, for a cost of 0.7 million which in turn acquired 99.9% of the shares in Van Impe, Mertens & Associates BV, also providing audit services in Belgium for 4.3 million. The acquisitions in Belgium had the following estimated impact on the groups assets and liabilities:
Provisional pre-acquisition carrying amounts Millions Euros m
Property, plant and equipment Intangible assets Trade and other receivables Trade and other payables Identifiable net assets The fair value of the amounts to be recognised at the acquisition date in respect of these assets, liabilities and contingent liabilities, and the fair value of the cost of investment have not yet been assessed and will be disclosed in the 2011 consolidated financial statements.
1 1 1 (3)
Notes
28 Events after the year end continued. (c) Norway and Saudi Arabia. In October 2010 the members of ELLP voted to accept the merger into the group of the KPMG member firms in Norway and the Kingdom of Saudi Arabia, the partners in these firms having previously also voted in favour of these mergers. At the date of approval of these accounts, however, the related agreements to give legal effect to these mergers had not been completed.
Publication name: KPMG Annual Report 2010 Publication date: December 2010 Design: CONRAN DESIGN GROUP Photography: Simon Kreitem
2010 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms that have elected to merge with it. KPMG Europe LLP is part of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. No member firm that is part of KPMG Europe LLP or any other KPMG member firm has any authority to obligate or bind KPMG Europe LLP, KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Printed in the United Kingdom.

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KPMG EuroPE LLP

Annual Report 2010

KPMG Europe LLP | Annual report 2010 | 1

Experience KPMG online www.kpmg.eu/annualreport

2 | KPMG Europe LLP | Annual Report 2010

KPMG Europe LLP Chairmens statement.

John Griffith-Jones Joint Chairman Rolf Nonnenmacher Joint Chairman

Experience KPMG online www.kpmg.eu/annualreport

KPMG Europe LLP | Annual report 2010 | 3

4 | KPMG Europe LLP | Annual Report 2010

KPMG Europe LLP Chairmens statement continued

KPMG Europe LLP | Annual report 2010 | 5

John Griffith-Jones. Joint Chairman Rolf Nonnenmacher. Joint Chairman

6 | KPMG Europe LLP | Annual Report 2010

KPMG Europe LLP Chief Operating Officers review.

Richard Bennison Chief operating officer

Experience KPMG online www.kpmg.eu/annualreport

KPMG Europe LLP | Annual report 2010 | 7

8 | KPMG Europe LLP | Annual Report 2010

Experience KPMG online www.kpmg.eu/annualreport

KPMG Europe LLP | Annual report 2010 | 9

Richard Bennison. Chief operating officer

10 | KPMG Europe LLP | Annual Report 2010

KPMG Europe LLP Managing Our Business.

Experience KPMG online www.kpmg.eu/annualreport

12 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace.

Experience KPMG online www.kpmg.eu/annualreport

14 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace.

Joachim Schindler Head of Audit

Audit revenue 2010: 1,787 million

Ernst Grbl Head of Tax

Tax revenue 2010: 865 million

16 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace. continued

Performance & Technology revenue 2010: 457 million

Carsten Schiewe Head of Risk & Compliance

Risk & Compliance revenue 2010: 455 million

18 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace continued

Simon Collins Head of Transactions & Restructuring

Transactions & Restructuring revenue 2010: 716 million

Jeremy Anderson Head of Markets and Financial Services

20 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace continued

Client focus: A case study. Helping Barclays cut through complexity.

Achieving Operational Excellence.

22 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace. continued

24 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace continued

Infrastructure, Government & Healthcare.

26 | KPMG Europe LLP | Annual Report 2010

Client focus: Q&A with Mark Britnell. The state of healthcare.

Huge opportunity in healthcare.

Our five global healthcare propositions

28 | KPMG Europe LLP | Annual Report 2010

Business review & marketplace continued

Jeremy Anderson Head of Markets and Financial Services

30 | KPMG Europe LLP | UK Annual Report 2010

Experience KPMG online www.kpmg.eu/annualreport

32 | KPMG Europe LLP | Annual Report 2010