ellp annual report 2013

Contents

Chairmans statement 1

Report to the members 2

Statement of members responsibilities in respect of the Report to the members and the group fi nancial statements 9

Independent auditors report to the members of KPMG Europe LLP 10

Consolidated income statement 11

Consolidated statement of comprehensive income 12

Consolidated statement of fi nancial position 13

Consolidated statement of changes in equity 15

Consolidated statement of cash fl ows 16

Notes 17

KPMG Europe LLP Annual Report 2013

Chairmans statement

We continue to live in challenging times in which business confi dence remains fragile and the challenges facing our clients remain highly complex, be they economic uncertainties in their marketplaces, changing regulatory demands or keeping up with the pace of global competition and technology change. We aim to advise and assist these clients in forming and implementing solutions, accompanying them in their necessary transformation processes. We do this by aligning our strategy to the KPMG global strategy and aiming to be the most relevant and trusted professional services network for our clients, our people and wider society.

We are facing a new set of dynamics in our core European marketplace. The business leaders I meet are looking for KPMG to demonstrate even greater borderless and best team responses. For this reason we have reinvigorated our KPMG Europe LLP (ELLP) structure and moved towards an expanded KPMG structure within the Europe, Middle East and Africa region (EMA).

During 2013, the EMA Country Senior Partners (CSPs) and Board discussed and agreed this new operating model for the EMA region: through support of the largest and highest growth fi rms across the region, we have built on the success of ELLP over the last five years and are applying the lessons we have learned about our market. This transition from ELLP to EMA was supported not only by our CSPs but also by an overwhelming majority of the partners who are members of ELLP; a change in both the infrastructure within ELLP and a change to the governance and management structure were agreed during September 2013, to operate with effect from 1 October 2013.

The final step in this transition is the demerger of the ELLP group, thereby facilitating the alignment with EMA priorities. The ELLP Board voted in favour of the demerger in May 2014, followed by an ELLP members vote in June 2014. As a consequence, it is intended that the ELLP group be demerged by 30 September 2014 or as soon as is practically possible thereafter.

We now have an EMA region which is focused on exceptional quality and client service to drive relentlessly on profi table growth. As an EMA leadership team, we are dedicated to removing any barriers to the effectiveness of quality cross-border client service. We are committed to ensuring that the best talent KPMG has to offer globally is assigned to our clients challenges, and to make and share investments with regard to the long-term view of our clients needs.

Europe remains one of the most competitive and economically challenging global environments for the provision of professional services. The imminent introduction of new Audit regulations in the European Union, affecting entities that are, or groups that contain, EU Public Interest Entities adds to the scale and complexity of this challenge. The introduction of mandatory audit firm rotation and further restrictions on non-audit services which can be provided to audit clients represent a logistical and business challenge that requires a Europe wide response. Notwithstanding the challenges, we see this new regulation as an opportunity to compete for a greater audit market share and to deepen relationships with all our clients on a coordinated Europe-wide basis with KPMG firms beyond the ELLP group.

This is an exciting time to lead KPMG in the EMA region. I am certain that the decisions we have taken over the past 12 months, to build on our ELLP experience in the context of a wider and more commercially focused EMA will drive significant improvements in the quality of service we offer our clients and the performance of our network.

On behalf of ELLP I would like to pay tribute to my predecessor as Chairman, Rolf Nonnenmacher, who stepped down as Chairman on 30 September 2013 and who also retired from the German fi rm. Rolf was one of the architects and fi rst Joint Chairman of ELLP, and whose vision for making a bold move to bring KPMG firms closer together in Europe for the benefit of its clients and our people still drives us forward today as we evolve our structure into achieving a wider and enhanced collaboration within EMA. We wish Rolf well in his retirement. In addition, I would like to thank all those Board Members who stepped down in 2013 for all their hard work and dedication during their time of offi ce.

John MacLean Scott Chairman

1/KPMG Europe LLP Annual Report 2013

www.kpmg.com/eu/annualreport

Report to the members

The Board presents its report together with the audited consolidated fi nancial statements of KPMG Europe LLP (ELLP) and its subsidiary undertakings (the group) for the year ended 30 September 2013. The financial statements to be fi led at Companies House will comprise the group financial statements and the separate financial statements of KPMG Europe LLP.

Principal activity The ELLP group is a cross-border professional services organisation that provides audit, tax and advisory services to a wide range of national and international clients across the public, private and not-for-profi t sectors.

Events after the year end Events after the year end, including changes to the group structure, are set out in note 28 to these fi nancial statements.

In May 2014, the ELLP members took the decision to demerge the ELLP group and return the ownership and governance of each ELLP member fi rm to local members. That decision was fully supported by a subsequent ELLP member vote concluded on the date of approval of these fi nancial statements, being 6 June 2014. Following completion of the demerger, it is intended that the partnership will be placed into a solvent members voluntary liquidation. As a result of this decision, the ELLP members have not prepared these financial statements on a going concern basis. However, as set out in note 1, the ELLP Board consider that it is still appropriate to reflect the results and financial position of the operating entities, operating through individual ELLP member firms, on a going concern basis, within the group fi nancial statements. Accordingly, these fi nancial statements do not include any adjustments resulting from the application of the non-going concern basis.

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 ELLP Partners (members) throughout the year. The partnership, which has its headquarters in Frankfurt am Main, Germany, has dual registration:

In the UK: registered number OC324045, registered address 15 Canada Square, Canary Wharf, London, E14 5GL.

In Germany (in the commercial register at the District Court of Frankfurt am Main): registered number HRA 44574, registered address The Squaire, Am Flughafen, 60549 Frankfurt am Main, Germany.

At 30 September 2013, the group comprised the following:

KPMG member firms providing audit, tax and advisory services in the UK, Germany, Switzerland, Spain, Luxembourg, the Commonwealth of Independent States (CIS, comprising entities in Russia, Ukraine, Armenia, Kazakhstan, Kyrgyzstan, Georgia and Azerbaijan) and Saudi Arabia;

The KPMG member firm in the Netherlands providing audit and advisory services; and

Certain entities of the KPMG member firms in Belgium and Turkey.

The group also comprised certain entities of the KPMG member fi rm in Norway throughout the year, until 30 September 2013. However, on that date, the nature of the agreement between ELLP and KPMG Norway changed such that the relationship changed from subsidiary to associate for accounting purposes, as set out in note 9.

The intention of each of the KPMG member firms in these countries when originally merging with the partnership was that their entire firm should be

included within the group. However, for mostly regulatory reasons, this is not currently possible in certain countries. The audit firm in Belgium, the Turkish firms audit and tax entities and the entities in the KPMG member fi rms in Kuwait and Jordan are therefore wholly excluded from the group whilst certain other entities are not wholly owned by the partnership. In all such 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.

Strategy The strategy of each ELLP member fi rm is aligned to that of the KPMG International global strategy which continues to be focussed on delivering strong and sustainable profi table growth.

We aim to be the most relevant and trusted professional services network for our clients, our people and wider society. Key investments in people, quality, technology and client services across the global network are targeted to ensure that clients experience the benefits of a better connected network whilst giving our people a fi rm where they most want to work and succeed.

During the year ended 30 September 2013, the country senior partners of the KPMG International member fi rms in Europe, Middle East and Africa (EMA), together with the EMA Board, discussed and agreed a new operating model for the EMA region that will allow priority focus on growth, increased collaboration and the seizing of the best opportunities across our markets in implementing KPMG International global strategy. ELLPs member firms have a fundamental role to play in this new EMA operating model and the Board has been challenged to think differently about our business, our clients and how KPMG EMA member firms work together.


Report to the members continued

In light of the necessity for the ELLP group to support and align with the EMA priorities, the ELLP Board and its members agreed a number of steps to support the transition to the newly

Strategy continued strengthened and optimised EMA region that enable a greater alignment with EMA and a stronger focus on the market place. These steps include the de-merger referred to above and, in the interim period, a change in both the infrastructure within ELLP and a change to the governance and management structure with effect from 1 October 2013, as set out further in the ELLP Transparency Report 2013 (www.kpmg.com/eu).

Performance for the year The group generated revenue for the year ended 30 September 2013 of 5,004 million, against a prior year fi gure of 4,997 million. Whilst reported revenue was flat year on year, the group achieved a 2% growth in revenue on a like for like basis, ignoring the impact of exchange rate fluctuations, referred to internally as gross sales, as set out in note 3.

Performance is monitored internally by reference to net sales, being gross sales net of recoverable expenses; reconciliation of net sales to IFRS reported revenue is given in note 3 of the financial statements. With the exception of the Netherlands, all of the ELLP member firms achieved growth in net sales year on year, most notably in the Gulf and Turkey, with Turkey achieving over 20% growth in net sales for the second year running. Net sales growth in other ELLP member firms was more modest, ranging between 1-7% on a like for like basis. Net sales in the Netherlands fell by 4%, largely refl ecting a difficult market in Advisory.

Both the Audit and Tax functions achieved net sales growth in the year of 2%. Within the Advisory function, both Risk Consulting and Management Consulting achieved net sales growth of

3% and 13% respectively. Our Transactions and Restructuring practice saw a 7% fall in net sales, again reflecting the difficult market conditions and lacklustre M&A market in particular.

Profit for the financial year available for non salaried members increased by 20%, largely as a result of signifi cant measures taken to reduce headcount in certain countries, notably the UK and the Netherlands, towards the end of 2012 and early in 2013. These measures resulted in a reduction of 22 million in staff costs incurred in the year ended 30 September 2013. Other cost saving initiatives have also been introduced across many ELLP member firms, resulting in a reduction in other operating expenses of almost 50 million year on year.

Financial position at the end of the year The financial position of the group remains strong, with net assets increasing to 534 million (2012: 469 million) as a result of increasing profitability. Total assets reduced slightly year on year, from 3,112 million to 3,065 million, largely refl ecting a net reduction in non-current assets arising through disposal and amortisation charges.

Total members interests totalled 857 million (2012: 834 million). These members interests refl ect the investment from the members in the group, including members capital which is provided by each member on becoming a partner. Members capital totalled 132 million at 30 September 2013 (2012: 150 million). Since it is only repayable on retirement or resignation, members capital is generally stable from year to year. The relatively large reduction year on year is primarily as a result of the repayment of capital to retiring ELLP partners which has not been replaced by new capital held at this level most ELLP member fi rms now have a national partner category and whilst those new partners also contribute capital to their local ELLP member firm, it is not classifi ed as

members capital for the purposes of these fi nancial statements.

The main categories of current assets of the group are trade receivables and unbilled amounts for client work. Both categories are monitored at departmental and function levels within each member firm. The prompt rendering of fees for work done and collection of the resulting receivables are important aspects of the monitoring of financial risks within the group. These assets totalled 1,448 million at 30 September 2013 (2012: 1,448 million).

Significant liabilities of the group include provisions for defi ned benefi t pension plans and partner annuities, both of which have increased during the year largely as a result of the assumptions used for valuation for accounting purposes (see note 20 and note 21).

Cash flows during the year The groups activities are normally cash generative, save for investments in property, plant and equipment and intangible assets. Cash generated from operations of 707 million (2012: 688 million) facilitated a signifi cant reduction in short-term bank borrowings during the year.

Bank facilities of 587 million (2012: 609 million) are available to the group, including a revolving credit facility of 479 million which was renewed in November 2013 and matures in January 2019 (see note 23(c) and 28). At 30 September 2013 163 million (2012: 318 million) had been drawn down against these facilities; the group continues to maintain a signifi cant level of committed undrawn borrowing facilities to enable us to respond quickly to investment opportunities.

Cash outflows are strongly infl uenced by the timing and amounts of payments in respect of profit shares and bonuses to members and staff. In addition to the bank facilities available, the group could cease or alter the phasing of partner distributions in order to ensure suffi cient

* Net sales is revenue net of recoverable expenses and is the key internal top line key performance indicator. Details concerning the reconciliation of net sales to IFRS reported revenue is given in note 3 of the fi nancial statements.




finance is available to the group as required.

Changes in accounting policy The ELLP group has adopted early the Amendment to IAS 19 Employee benefits, resulting in a restatement of prior year comparatives in both the income statement and statement of financial position. Full details of the impact of this change in accounting policy are set out in note 1.

Treasury and risk policies The principal treasury risks of the group relate to currency, liquidity and interest full details of the groups policies and management of treasury risks are set out in note 23.

Staff and members KPMG aims to be an employer of choice being ranked in the top ten of Universums Worlds most attractive employers survey for the fourth consecutive year is endorsement to the fact that we are achieving that aim. Although our employment and recruitment programmes are now entirely run at a country level, refl ecting the needs of each local market, we continue to promote cross border secondments to enable our people to enhance professional skills whilst building a deeper understanding of international business.

The average number of staff and members of the group during the year was 32,192 (2012: 32,281). The reduction year on year refl ects the restructuring programmes in certain areas towards the end of 2012 and early in 2013. As a result of this restructuring, the ELLP member firms are now better placed for future opportunities and growth.

A member may receive income under an employment or service contract with a subsidiary entity, or as a profit share from the partnership or a subsidiary partnership. Policies on the allocation of profi ts and drawings, and on members capital, are set out in note 1. Further details on partner pay

is also set out in section 7 of the 2013 ELLP Transparency Report.

Corporate social responsibility (CSR) We continue to build on strong foundations in CSR, following the commitment of the members of the KPMG EMA Board to undertake CSR activities in all EMA member fi rms. As with our employment initiatives, all CSR activity is run at a country level, which is entirely appropriate, given the varied markets in which we operate. That said, the common CSR agenda for all ELLP firms is to inspire, challenge and empower our people to make a positive contribution to local communities.

Full details of country specifi c CSR activity can be found on the websites of each ELLP member fi rm, accessible through www.kpmg.com.

Governance As a major international organisation, the ELLP group applies high standards of corporate governance. The governance structure in place during the year ended 30 September 2013 is described fully in the ELLP Transparency Report 2013 (www.kpmg.com/eu) but is summarised below. As noted in the Strategy section above, the governance and management structure set out below changed with effect from 1 October 2013 to allow ELLP management to better align with EMA priorities; these changes are detailed further in the 2013 ELLP Transparency Report.

The Chairman Formally appointed by the Board (with appointment ratified by the members), the Chairman is responsible for leading the group and chairing the Board and Executive Committee.

Designated members The designated members (as defi ned in the Limited Liability Partnerships Act 2000) of the partnership during the year were:

Rolf Nonnenmacher (resigned 30 September 2013)

Joachim Schindler

Klaus Becker

Simon Collins

Paul Long

James Marsh

Jaap Van Everdingen (through Parkside BV)

Subsequent to the year end, in March 2014, Jaap van Everdingen and Joachim Schindler resigned and John Maclean Scott and Ewald van Hamersveld were both appointed as designated members of the partnership.

The Board The Board is responsible for ensuring that the group is run in the interests of the members and for setting the strategy of the group and overseeing its implementation by the Executive Committee. As at 30 September 2013, there were 21 members on the Board; those serving during the year were as follows:

Executive

Rolf Chairman (until 30 Nonnenmacher**** September 2013)

John M Scott Chairman (from 1 October 2013)

Jaap van Everdingen Chief Operating Offi cer

Mike Ashley**

Aiden Brennan*

Christian Jnisch*

Graeme Ross*

Tim Payne*

Carsten Schiewe*

Joachim Schindler*

Lief Zierz*



The Board continued

Non-executive

Abdullah Al Fozan

Klaus Becker

Georges Bock

Jurgen van Breukelen

Simon Collins

Gertraud Dirscherl*

Oleg Goshchansky

Roger Neininger

Stein-Ragnar Noreng*

Jack van Rooijen***

Patrick Simons

Ian Starkey*

* Resigned on 30 September 2013 as part of the governance restructure

** Retired from KPMG on 13 September 2013 *** Retired from KPMG on 27 September 2013 **** Retired from KPMG on 30 September 2013

Subsequent to the year end, in March 2014, Jaap van Everdingen resigned from the ELLP Board and Ewald van Hamersveld was appointed as Chief Operating Officer. Roger Neininger, Abdullah Al Fozan and Jurgen van Breukelen subsequently resigned from the Board in May 2014.

Five bodies reporting to the Board during the year:

The Executive Committee: comprising of five members of the Board, the Executive Committee is responsible for recommending policy to the Board and implementing the strategy of the group, through development of the business plan.

The Nominations & Remuneration Committee: comprising of fi ve members, this Committee is responsible for key appointments within the group and for policies or partners remuneration, including the determination of the remuneration of the Chairman.

The Quality & Risk Committee: comprising of three members who held a non-executive role on the Board, this Committee is responsible for providing oversight of quality and risk management matters across the group.

Public Interest Committee: comprising of three external non-executives, this Committee is responsible for overseeing the public interest aspects of decision making of the group, including the management of risks. A full report from the Chair of the Public Interest Committee on the activities of the Committee during the year ended 30 September 2013 can be found in the ELLP Transparency Report 2013 at www.kpmg.com/eu.

The Audit Committee: comprising of three members who held a non-executive role on the Board, this Committee is responsible for reviewing the effectiveness of the operational and financial controls of the group and for considering accounting and disclosure issues arising in respect of the groups affairs.

Activities of the Audit Committee The key responsibilities of the Audit Committee are set out in full terms of reference, approved annually by the ELLP Board. In reviewing the effectiveness of the operational and financial controls of the group, the Audit Committee is required to review and monitor the scope and effectiveness of the activities of the groups internal audit function. Similarly, in considering accounting and disclosure issues arising in respect of the groups affairs, the Audit Committee is required to review the annual financial statements and liaise with the external auditors, reviewing the nature and scope of the audit.

In order to discharge its duties, the Audit Committee met four times during the year ended 30 September 2013. When appropriate, they were joined by the Head of Finance & Infrastructure, Head of Finance, Head of Internal Audit and the lead audit partner of our external auditors. The Audit Committee members also meet privately with both the Head of Internal Audit and the external auditors as part of the year end process.

During its meetings, the Audit Committee has performed the following:

Provided input into the groups Enterprise Risk Management process, reviewing key business risks and mitigations, prior to consideration by the ELLP Board;

Considered the current status on all professional claims, including the exposure to uninsured cost; discussed regular updates as to the progress of each claim with the groups legal team;

Reviewed the work undertaken in respect of internal controls operating within the group, including review of the ELLP Transparency Report, prior to approval by the ELLP Board;

Reviewed and approved the scope of work to be undertaken by the Internal Audit function, reviewed regular updates as to the progress of each review against plan and discussed any significant issues identified as a result of those reviews;

Reviewed and approved the external auditors plan for the audit of the group financial statements, including the identification of key risks; reviewed detailed reports as to the progress of audit work against plan and discussed any significant issues identified as a result of the work undertaken; and

Considered the appropriateness of the groups accounting policies, culminating in the review of the annual financial statements, prior to the approval by the ELLP Board.

The key areas of risk that have been identified, reported to and considered by the Audit Committee in relation to the financial statements are as follows:

Revenue recognition: the judgements applied in determining the timing of revenue recognition and the recoverability of related unbilled amounts for client work and client receivables;




Professional claims: the judgements applied in either provisioning for, or disclosing, exposure to uninsured cost (including related legal expenses);

Retirement benefi ts: the assumptions selected for valuation of the defi ned benefit pension plans and former member annuities, under IAS 19, and the impact of the adoption of IAS 19 Revised.

Scope of consolidation: the application of IAS 27, particularly in respect of entities that are not wholly owned, or where ELLP does not have the majority voting rights, to ensure that accounting policy is applied consistently.

Events after the year end: accounting and disclosure issues arising from events after the year end, particularly in respect of the demerger and intended liquidation of the partnership.

Having reviewed the reports received from the Head of Infrastructure and Finance and external auditor, the Audit Committee is satisfied that these key areas of risk and judgement have been appropriately addressed in the fi nancial statements.

As noted above, the Audit Committee is also responsible for overseeing the relationship with the external auditor, including the approval of annual fee arrangements and reappointment by the Board. Grant Thornton UK LLP was appointed as group auditor in 2008, following a competitive tender process. During the year ended 30 September 2013, member firms of Grant Thornton International Limited provided audit services to seven of the 11 ELLP fi rms. The Audit Committee has reviewed the performance of the external auditor and is satisfied that Grant Thornton UK LLP remained effective and independent in carrying out its responsibilities up to the date of signing this report. Accordingly, the Audit Committee have recommended the reappointment of Grant Thornton UK LLP.

The provision of non-audit services is monitored by the Audit Committee. During the year, fees of 26,000 (2012: 8,000) were paid to Grant Thornton UK LLP in respect of non-audit services.



Principal risks and uncertainties The identification, evaluation, management and monitoring of the most significant risks that face ELLP member firms and could threaten the achievement of our strategic objectives are the responsibility of the Board. Mitigating actions are taken where possible in order to reduce these risks to acceptable levels. Further details of quality control procedures are set out in the ELLP Transparency Report 2013, available online at www.kpmg.com/eu. The principal risks and uncertainties facing ELLP member firms are set out below:

Risk description Mitigation

Audit failures major or multiple A tone at the top which emphasises quality, ethics and integrity

Issuance of an incorrect audit opinion and/or poor quality auditing Rigorous client and engagement acceptance procedures resulting in shareholder loss, litigation, regulatory action or lost clients through the resulting reputational damage. Clear standards and robust audit methodology and tools

Appropriate oversight of both internal and regulatory audit quality reviews, recommendations and actions

Regulatory relationships Nominated individuals responsible for interaction with regulatory authorities on a country by country basis Failure to maintain good relationships with our key regulators or deal

with any adverse findings from regulatory inspections to the Majority of ELLP Board are Qualified Individuals with appropriate regulators satisfaction resulting in loss of market confidence in the audit training and background quality of our audits, loss of key clients or sanctions from our regulators.

Major litigation or regulatory investigation General engagement quality and risk management controls

Actual or suspected failure of our services, delivered either Default position of engagement contracts being prepared under domestically, in another jurisdiction or jointly with other KPMG local law and jurisdiction member firms, resulting in loss for our clients, harming our reputation, opening us to increased scrutiny, the prospect of major claims and Rigorous and robust inter-firm contracting protocols when working legal costs. with other KPMG member fi rms

Major regulatory change An established plan within ELLP for regulatory liaison

Major change in regulation impacting on our business model from Robust contingency planning in place for each of the potential likely either the European Commission, national legislation, international or regulatory outcomes national regulators or from clients themselves in anticipation of regulatory changes, in particular resulting in further restrictions on the non-audit services we can offer to existing audit clients or being precluded from pitching for an audit.

Data loss Robust IT security policies and processes

Failure to protect client confidential or personal data, leading to loss ISO 27001 accreditation in our largest fi rms for our clients, potential damage to our reputation, loss of key clients and open us up to potential litigation or regulatory fi nes. Ongoing training and awareness campaigns

Financial risk Appropriate budgetary challenge

Failure to achieve financial objectives as a result of challenging Monthly financial analysis of groupss results economic circumstances would put pressure on our earnings and margins, and reduce partner and staff compensation. Pricing panels in operation

Cost optimisation programmes




Principle risks and uncertainties continued

Risk description Mitigation

Delivering inappropriate services

Delivery of services which are either illegal, unethical, contravene professional standards, or are otherwise perceived by investors, regulators or other stakeholders as inappropriate could damage the reputation of ELLP and that of our clients and could potentially result in regulatory sanctions, legal action or damage our relationship with key regulators.

Overriding internal quality control system, including:

Rigorous client and engagement acceptance procedures

Robust conflict checking processes

Policies and processes around auditor independence

Robust compliance programmes

Code of conduct and values

Whistle blowing processes

Money laundering reporting procedures

Failure to grow our market share

Through being unable to quickly and effectively match key skills to growth areas due to organisational barriers, skills shortages, slowness in identifying or recruiting appropriate skills or lack of staff mobility and/or flexibility, resulting in loss of revenue, excessive resources or costs building up in areas of low demand or lead to a reduction in the

quality of the service that our clients receive as the wrong teams try to deliver our services.

Continuous monitoring of resource levels and functional hot spots

Career paths, development and succession planning for senior grades

Global mobility programme in place

Engagement acceptance processes consider skills and competencies of the team

Failure to engage our people

Resulting from high workloads impacting work life balance, poor internal communication, uncertainty around career development, or reward packages being perceived as uncompetitive, in turn impacting the levels and quality of service delivered to our clients, resulting in the loss of key personnel or the loss of our strong reputation as employer of choice.

An embedded group of People Management Leaders

Sophisticated appraisal and reward processes

Ongoing review of global performance management and development programmes

Ongoing initiatives to address feedback from people surveys

Partner capability Special training programmes in place focusing on leaders of the future Failure to build confident and capable lead partners could result in a

loss of important talent with delivery and quality of services provided Annual promotion process and pay review to our clients, leading to lower revenues and loss of reputation and also impact on the effectiveness of our succession planning. Defined partner career paths and development framework

Partner succession planning

Disclosure of information to the auditor The Board members who held office at the date of approval of these financial statements confirm that, so far as they are each aware, there is no relevant audit information of which the groups auditor is unaware; and each Board member has taken all the steps that he ought to have taken to make himself aware of any relevant audit information and to establish that the groups auditor is aware of that information.

Auditor In accordance with Section 485 of the Companies Act 2006, the independent auditor, Grant Thornton UK LLP, will be proposed for reappointment.



Statement of members responsibilities in respect of the Report to the members and the group fi nancial statements The members are responsible for preparing the group fi nancial 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 fi nancial 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 and applicable law.

Under Regulation 8 of the 2008 Regulations the members must not approve the financial statements unless they are satisfied that the fi nancial statements 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 fi nancial statements, the members are required to:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

state whether they have been prepared in accordance with IFRS as adopted by the EU; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. As explained in note 1, the decision has been taken to de-merge the ELLP group and return the ownership and governance of each ELLP member firm to local members. Following completion of the demerger, it is intended that the partnership will be placed into a solvent members voluntary liquidation and the members do not consider that it is appropriate to prepare these financial statements on a going concern basis.

Under Regulation 6 of the 2008 Regulations the members are responsible for keeping adequate accounting records that are suffi cient to show and explain the partnerships transactions and disclose with reasonable accuracy at any time its financial position and enable them to ensure that the fi nancial 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 fi nancial 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.

John MacLean Scott Designated member

Paul Long Designated member


Consolidated income statement for the year ended 30 September 2013

Restated (note 1) 2013 2012

Note m m

Revenue 3 5,004 4,997

Other operating income 4 170 160

Staff costs 5 (2,557) (2,579)

Depreciation and amortisation 11, 12 (105) (101)

Other operating expenses 7 (1,529) (1,578)

Operating profi t 983 899

Financial income 8 23 20

Financial expense 8 (44) (51)

Net fi nancial expense (21) (31)

Share of profit of associated undertakings 2 2

Profit before taxation and remuneration for current members 964 870

Tax expense 10 (12) (7)

Profit for the financial year before remuneration for current members 952 863

Remuneration for current salaried members 6 (446) (440)

Profit for the financial year available for non-salaried members 506 423

Profit for the financial year attributable to:

Members as owners of the parent entity 503 422

Non-controlling interests 3 1

506 423



Consolidated statement of comprehensive income for the year ended 30 September 2013

Restated (note 1) 2013 2012

Note m m

Profit for the fi nancial year 506 423

Other comprehensive income

Items that will not be reclassified subsequently to profit or loss:

Remeasurement on defi ned benefit pension plans 21 (50) (127)

Related tax effect 10 25 29

Items that may be reclassified subsequently to profit or loss:

Foreign exchange translation differences (20) 36

Other comprehensive income for the year, net of tax (45) (62)

Total comprehensive income for the fi nancial year 461 361

Total comprehensive income for the financial year attributable to:

Members as owners of the parent entity 458 360

Non-controlling interests 3 1

461 361


Consolidated statement of fi nancial position at 30 September 2013

Restated (note 1) Restated (note 1) 2013 2012 2011

Note m m m

Assets

Non-current assets

Property, plant and equipment 11 543 600 570

Intangible assets 12 136 144 132

Other investments 13 11 10 25

Deferred tax assets 14 112 87 48

Tax receivable 10 13 16 19

Retirement benefi ts 21 14 13 11

Non-current loans and receivables 15 16 19 18

845 889 823

Current assets

Trade and other receivables 16 1,632 1,647 1,551

Amounts due from members 22 150 156 140

Other investments 17 61 78 73

Tax receivable 14 15 14

Cash and cash equivalents 18 363 327 273

2,220 2,223 2,051

Total assets 3,065 3,112 2,874

Equity and liabilities

Other reserves classified as equity, being equity attributable to members, as owners

526 464 577

Non-controlling interests 8 5 4

Total equity 534 469 581

Liabilities

Non-current liabilities

Retirement benefi ts 21 342 316 175

Amounts due to members 22 19 20 4

Provisions 20 163 149 133

Deferred tax liability 14 18 27 20

Other non-current liabilities 14 19 13

556 531 345



Consolidated statement of fi nancial position continued at 30 September 2013

Restated Restated (note 1) 2013 2012 2011

Note m m m

Current liabilities

Short-term bank borrowings 23 163 318 313

Trade and other payables 19 1,276 1,231 1,031

Tax payable 18 8 4

Amounts due to members 22 330 356 412

Provisions 20 56 49 42

Members capital 22 132 150 146

1,975 2,112 1,948

Total liabilities 2,531 2,643 2,293

Total equity and liabilities 3,065 3,112 2,874

Total members interests

Members capital 132 150 146

Other reserves classified as equity 526 464 577

658 614 723

Amounts due from members (150) (156) (140)

Amounts due to members 349 376 416

Total members interests 857 834 999

The financial statements on pages 11 to 61 were approved by the members on 6 June 2014 and were signed on their behalf by:

John Maclean Scott Paul Long Designated member Designated member


Consolidated statement of changes in equity at 30 September 2013

Restated (note 1) Restated Restated

Members other Translation (note 1) Non-controlling (note 1) Note reserves reserve Total interests Total equity

m m m m m

Balance at 1 October 2011 695 (140) 555 4 559

Prior year adjustment to opening balance 1 22 - 22 - 22

Restated balance at 1 October 2011 717 (140) 577 4 581

Comprehensive income:

Profit for the fi nancial year 422 - 422 1 423

Foreign exchange translation differences - 36 36 - 36

Remeasurement on defi ned benefi t pension plans

(127) - (127) - (127)

Related tax effect 29 - 29 - 29

Total comprehensive income 324 36 360 1 361

Transactions with owners:

Profits allocated to members during the year (450) - (450) - (450)

Other movements 22a (23) - (23) - (23)

Total transactions with owners (473) - (473) - (473)

Balance at 30 September 2012 568 (104) 464 5 469

Comprehensive income:

Profit for the fi nancial year 503 - 503 3 506

Foreign exchange translation differences - (20) (20) - (20)

Remeasurement on defi ned benefi t pension plans

(50) - (50) - (50)

Related tax effect 25 - 25 - 25

Total comprehensive income 478 (20) 458 3 461

Transactions with owners:

Profits allocated to members during the year (386) - (386) - (386)

Disposal of subsidiary to members 9 (3) 1 (2) - (2)

Other movements 22a (8) - (8) - (8)

Total transactions with owners (397) 1 (396) - (396)

Balance at 30 September 2013 649 (123) 526 8 534


1


Notes forming part of the consolidated financial statements continued

Accounting policies continued Change in accounting policy continued In addition there have been amendments made to the disclosure requirements for defi ned benefit plans, requiring more information about the characteristics of such plans and the risks to which entities are exposed through participation in these plans, as set out in note 21.

Retirement benefi ts Provisions Total

(Credit)/charge m m m

Adjustment to opening equity at 1 October 2011:

Restate net defi ned benefit pension obligation (12) - (12)

Restate provision held for obligations to employees - (14) (14)

Restate deferred tax on provision - 4 4

Net impact on opening equity at 1 October 2011 (12) (10) (22)

Adjustment to income statement year ended 30 September 2012:

Reduction in defi ned benefit current service cost (3) - (3)

Increase in defi ned benefit net interest charge 1 - 1

Adjustment to other comprehensive income year ended 30 September 2012:

Increase in remeasurement losses on defi ned benefit pension plans 14 - 14

Net impact on equity at 30 September 2012 - (10) (10)

Adjustment to income statement year ended 30 September 2013:

Reduction in defi ned benefit current service cost (4) - (4)

Increase in defi ned benefit net interest charge 4 - 4

Adjustment to other comprehensive income year ended 30 September 2013:

Increase in remeasurement losses on defi ned benefit pension plans - - -

Net impact on equity at 30 September 2013 - (10) (10)

The application of the Amendment has resulted in a net impact on opening equity in respect of both retirement benefi ts and provisions; the former as a result of the application of risk sharing concepts in Switzerland, now permitted under IAS 19 Revised, and the latter as a result of certain provisions held in Germany no longer qualifying for recognition under IAS 19 Revised.


1


Accounting policies continued Future developments The following standards and amendments have been endorsed and will be adopted by the group in future periods:

IFRS 10: Consolidated Financial Statements and subsequent amendments; effective for periods beginning on or after 1 January 2014.

IFRS 11: Joint Arrangements and subsequent amendments; effective for periods beginning on or after 1 January 2014.

IFRS 12: Disclosures of Interests in other Entities and subsequent amendments; effective for periods beginning on or after 1 January 2014.

IAS 27: Separate Financial Statements and subsequent amendments; effective for periods beginning on or after 1 January 2014.

IAS 28: Investment in Associates and Joint Ventures; effective for periods beginning on or after 1 January 2014.

Amendment to IFRS 7: Disclosures Offsetting financial assets and liabilities; effective for periods beginning on or after 1 January 2013.

Amendment to IAS 32: Offsetting financial assets and liabilities; effective for periods beginning on or after 1 January 2014.

These standards and amendments are expected to have minimal impact on the groups fi nancial statements.

Basis of preparation The financial statements are prepared on the historical cost basis except that derivative financial instruments and certain other financial instruments are stated at their fair value.

The preparation of fi nancial 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 fi nancial 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 fi rms in Germany and the UK and the subsequent addition of member fi rms in other countries (see notes 9 and 27) were regarded by the respective countries partners as being mergers of like-minded professional services fi rms, not involving an acquisition in the normal sense. 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.

The group has applied the acquisition method for all business combinations disclosed in note 9.

Subsidiaries are entities controlled by the partnership. Control exists when the partnership has the power, directly or indirectly, to govern the fi nancial 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 fi nancial statements from the date that control commences to the date that control ceases.

When the group looses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in the income statement. If the subsidiary represents a separate major line of business or geographical area of operations, the subsidiary is classified as a discontinued operation under IFRS 5 Discontinued operations and the results of the subsidiary are classifi ed accordingly within the income statement.

Associates are those entities in which the group has signifi cant infl uence, but not control, over the fi nancial and operating policies. Associates are accounted for using the equity method and are initially recognised at cost. The consolidated fi nancial statements include the groups share of the total comprehensive income and equity movements of associates, from the date that signifi cant influence commences to the date that signifi cant infl uence 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 identifi able 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 the income statement.


1



Accounting policies continued Business combinations continued Consideration is measured at the fair value of assets provided and liabilities incurred by the group to the previous owners of the acquiree. Goodwill is recognised where the fair value of the consideration transferred exceeds the total of these fair values. Where the excess is positive, it is treated as an intangible asset, subject to annual impairment testing.

Transaction costs that the group incurs in connection with a business combination, such as legal fees, are expensed as incurred.

The mergers which formed the group, or have arisen since formation, refl ect 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 7-20 years

Framework contracts 2-4 years

Order book 3-6 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 date 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 the euro are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the 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 year end. Exchange differences arising from this translation are recognised in other comprehensive income in the translation reserve. They are reclassified from equity to the income statement as a reclassifi cation adjustment when a gain or loss on disposal of the relevant subsidiary is recognised.

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 signifi cant 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 sub-contractors and out of pocket expenses incurred in respect of assignments and expected to be recovered from clients.


1


Accounting policies continued Taxation For those group entities that are partnerships, taxation on all profi ts 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 partnerships) is accounted for in these fi nancial statements.

Distributions to members of these partnerships 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 partnerships and so are included in Members other interests or in Amounts due to members depending on whether or not division of profi ts 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 any 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, including 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 fi nancial 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 profi t; 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 profi ts 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 fi nancial assets), gains on derivatives recognised in the income statement, exchange gains and other financial income. Interest income is recognised as it accrues, using the effective interest method.

Financial expense comprises exchange losses, interest cost on short-term bank borrowings, losses on derivatives recognised in the income statement, net interest cost on net defi ned benefi t 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 fi nance 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.

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:

The residual value, if not insignifi cant, is reassessed annually.

Leasehold land 999 years (or life of lease, if shorter)

Leasehold 50 years buildings (or life of lease, if shorter)

Offi ce furniture, 5-12 years fi ttings and equipment

Computer and 2-5 years communications equipment

Motor vehicles 5 years


1



Accounting policies continued Intangible assets Expenditure on research is recognised in the income statement as an expense as incurred. Development expenditure on internally generated software is capitalised only if development costs can be measured reliably, if the product or process is technically and commercially feasible, future economic benefi ts are probable and the group has suffi cient 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 fi nite 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 fi nancial instruments Non-derivative fi nancial instruments comprise other investments, trade and other receivables, unbilled amounts for client work, cash and cash equivalents, loans and borrowings, trade and other payables, members capital and amounts due to and from members.

Other investments Other investments held by the group mainly comprise bonds, as equities and shares in investment funds. These assets are classified either as available-for-sale or at fair value through profi t or loss and are stated at fair value, calculated by reference to their listed 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 the income statement. Where these investments are interest bearing, interest calculated using the effective interest rate method is recognised in the income statement.

Any resultant gain or loss on those assets classified as fair value through profit or loss is recognised in the income statement.

Other investments also include investments in non-consolidated entities, stated at cost less provision for impairment, and the groups share of net assets in associated undertakings.

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, non-current loans and receivables are recorded at amortised cost.

Trade and other receivables Trade and other receivables (except unbilled amounts for client work) are initially 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.

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.

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.

Short-term bank borrowings Short-term bank borrowings are initially 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.


1


Accounting policies continued Non-derivative fi nancial instruments continued Trade and other payables Trade and other payables are initially recognised at fair value, based upon the nominal amount outstanding. Subsequent to initial recognition, they are recorded at amortised cost.

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 a partnership 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 current liability and is stated at its nominal value, being the amount repayable.

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, non-current 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. Any amounts due to or from members are included in amounts due to or from other group entities, as appropriate.

Derivative financial instruments and hedging The group uses derivative fi nancial instruments to provide an economic hedge against its exposure to foreign exchange rate and interest risks arising from operational, fi nancing and investment activities. In accordance with its treasury policy, the group does not hold or issue derivative fi nancial instruments for trading purposes. The derivative financial instruments used do not satisfy the criteria to be classifi ed as hedging instruments and so 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 classifi ed within Other investments; derivative fi nancial instruments with a negative fair value are classified within Trade and other payables. Attributable transaction costs are recognised in the income statement when incurred. Subsequent gains or losses on re-measurement of fair value are recognised immediately in the income statement. The fair value of forward exchange contracts, interest rate caps and interest rate swaps is the estimated amount that the group would receive or pay at the year end, taking into account current exchange rates, interest rates and the current creditworthiness of the swap counterparties.

Impairment The carrying amounts of the groups assets (except employee benefi t 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 fi nancial 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 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.


1



Accounting policies continued 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 due under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The fi nance 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.

Rental income from sub-let property is recognised in the income statement, within other operating income, on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

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 outfl ow 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 pre-tax rate that refl ects 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 benefi ts 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.

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 with prepayments or accruals being recognised accordingly. Rebates are recognised once they become receivable. 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.

Financial guarantees Where the partnership or a subsidiary enters into a financial guarantee contract to guarantee the indebtedness of another entity within, or associated with the group, the partnership considers this

to be an insurance arrangement and accounts for it as such. In this respect, the partnership or subsidiary entity treats each guarantee contract as a contingent liability until such time as it becomes probable that a payment will be required under the guarantee.

Retirement benefi ts The group operates various defi ned 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 defi ned benefit pension plans including three closed plans. Two of the plans are closed to new entrants and provide benefi ts 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 defi ned 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 benefi t is discounted to determine its present value, and the fair value of plan assets (at bid price) is deducted.

The group determines the net interest on the net defi ned benefit liability for the period by applying the discount rate used to measure the defi ned benefi t obligation at the beginning of the annual period to the net defi ned benefi t liability.

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.


1


Accounting policies continued Retirement benefi ts continued When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit relating to past service by employees, or the gain or loss on curtailment is recognised immediately in the income statement when the plan amendment or curtailment occurs.

Remeasurements comprise actuarial gains and losses and the return on plan assets (excluding interest). These are recognised immediately in the statement of comprehensive income and all other expenses related to defi ned benefi t plans in either staff costs or fi nancial expense in the income statement.

Surpluses are recognised on defi ned 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 fi nancial statements. As is permitted by the Limited Liability Partnerships Regulations and the Partnership Agreement, allocated profits may not necessarily represent all the profi ts arising in a particular financial year, if the Board considers it appropriate to retain profits or to allocate profi ts 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 disclosed separately in the income statement as

Remuneration for current salaried members. 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 in subsidiary partnerships 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. Both the monthly drawings and profi t distributions represent payments on account of current year profits and are reclaimable from members until profits have been allocated.

Pending the allocation of profits and their division between members, drawings and on-account profit distributions paid to such members during the year are shown as Amounts due from members. Any over-distribution of profit during the year is also receivable from members and so is classified in the same way. Unallocated profits are shown in equity as Other reserves. In both cases, amounts that may be determined as due from and attributable to members who retired from the partnership or subsidiary partnerships in the year may be included.

2 Accounting estimates and judgements The Audit Committee has discussed the development, selection, application and disclosure of the groups critical accounting 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 1,448 million (2012: 1,448 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, with reference to either the ability or willingness of the client to pay, may result in different values being determined.

Retirement benefi ts The net defi ned benefit liabilities of the groups pension plans of 342 million (2012: 303 million) are valued using certain assumptions (see note 21), including mortality assumptions, based on current published tables, and discount and inflation rates, both of which refl ect current market trends. If either were to change, there is a risk that there would be further variance in the actuarial gains and losses and fi nancial expense.

Former members annuities The group has used certain assumptions in assessing the provision for former members annuities of 72 million (2012: 68 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.


2



Accounting estimates and judgements continued Key sources of estimation uncertainty continued 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.

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 identifi able assets, liabilities and contingent liabilities acquired. Within such items will be intangible assets reflecting the current value of anticipated income streams from framework contracts, 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 benefi ts from existing customer relationships may endure.

Critical accounting judgements in Partner retirement provisions applying the groups accounting The group has assessed that no policies provision is required in respect of partner Acquisition accounting retirement arrangements that exist IFRS 3, Business combinations, across the ELLP member countries. requires that all cases meeting the There are no contractual obligations in definition of a business combination respect of these arrangements. The must be accounted for as an acquisition. assessment is based on the country-The creation of the group in 2008 and specific remuneration models and on the subsequent mergers each met the existence of a constructive obligation. In definition of a business combination. all countries, it has been determined that Hence, fair values must be determined a constructive obligation does not exist, for the identifiable assets, liabilities and either due to past practice in those contingent liabilities acquired, and for the counties or, in the case of the UK consideration transferred, even though partnership, due to the nature of the internally these transactions were each profit allocation mechanism. A different regarded as a pooling of interests with no assessment of the obligation arising attempt to value each firm on an arms under each of the remuneration models length basis, other than for the impact of may result in a recognised provision. harmonising accounting policies (see note 9).

Similarly, the basis for co-working with those entities in Belgium, Turkey, Norway, Kuwait and Jordan 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 signifi cant influence is exercised and that other entities are subject to neither control nor signifi cant infl uence, even where these entities constitute integral parts of the operations of the KPMG member firms in these countries. Further details impacting this assessment are given in note 27.


3


Segmental reporting The group has previously voluntarily adopted IFRS 8 Operating Segments. Accordingly, 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 and Advisory. The Advisory function is further split into Transactions & Restructuring (T&R), Risk Consulting (RC) and Management Consulting (MC). Therefore, these are considered as separate operating segments for the purposes of presenting segment information under IFRS 8.

The segments are identified for internal reporting purposes according to the nature of services provided; principal services provided by each segment include:

Audit: Provision of statutory and regulatory attestation services, advice in compliance with changing reporting and regulatory requirements, and non-statutory assurance services.

Tax: Advice and compliance assistance in relation to tax, remuneration planning and pensions.

Advisory:

T&R 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; fi nancial advice on public and private transactions including mergers and acquisitions, flotations and valuations.

RC 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 fi nancial matters.

MC Advice and support to improve business performance through transforming operations, business intelligence and fi nance transformation, working capital and cash management, revenue enhancement and cost optimisation, IT-enabled transformation, embedding risk and regulatory management and deal services.

Segmental reporting 2013 Information

ellp annual report 2013

Documents

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ellp members

ellp group

ema region

ellp board

kpmg europe llp ellp

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consolidated income