ellp_ara_2010_final_combined_lr

KPMG EuroPE LLP

Annual Report 2010

ContentsChairmen’s statement. page 2. Chief operating officer’s 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. • Nationalmarkets. page 30. People. page 40. CorporateSocialResponsibility. page 44. Corporate governance. page 48. Boardmembers. page 52. report to the members. page 54. Auditor’sreport. page 57. Financial statements. page 58.

KPMG Europe LLP | Annual report 2010 | 1

ExperienceKPMGonlinewww.kpmg.eu/annualreport

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.

DuringtheyeartheKPMGEuropeLLPgroupcomprisedinterestsintheKPMGfirmsinBelgium,RussiaandtheCommonwealthofIndependentStates(CIS),Germany,Luxembourg,theNetherlands,Spain,Switzerland,TurkeyandtheUK(seenote27),anditisthroughthosefirmsthatclientservicesaredelivered.Theseinterestsarereferredtoas‘thelegalgroup’.Wherespecified,figuresquotedinthereviewsectionsofthisannualreportmayrefertoproformadatafortheentitiescoveredbytheseinterests,asifthisstructurehadbeeninplacethroughout2009and2010,andignoringtheimpactofexchangeratefluctuations.FurtherKPMGoperationsandentitiesinthesecountries,whilstnotcontrolledbyKPMGEuropeLLPwithinthemeaningoftherelevantAccountingStandard,operateunderthesameprinciplesasthelegalgroupandtheseentitiestogetherwiththelegalgrouparereferredtoas‘ELLPfirms’.

2 | KPMG Europe LLP|AnnualReport2010

John Griffith-JonesJoint ChairmanRolf NonnenmacherJoint Chairman


KPMG Europe LLP Chairmen’s statement.

Afterthreeyearsofrapidexpansion,the KPMG member firms in Europe are workingsuccessfullyacrossdisciplinestohelpourclientsnavigateanincreasinglycomplexworld.


High Growth Focus.

Financial Services. Healthcare. Government&Infrastructure. Energy&NaturalResources. Communications&Media. Performance&Technology. TaxGlobalisation.

China. Emerging Markets.

ThereisastrongunityofpurposeevidentateverylevelofKPMGEuropeLLPtoday.Ourpartners’conferenceinFrankfurtinJunesymbolisedthiswell,givingustheopportunitytotakestockoftheprogresswehavemadebuildingtrulycollaborativeworking.

Increasingly,asplanned,itshinesthroughintheworkwearedoingforbothourglobalandournationalmarketclients.

Inanextremelytougheconomicenvironment,ourclientshavebeensupportedthroughdifficulttimesbythesignificantresilience,imaginationandskillofourpeople.TheresultswehaveachievedacrosstheELLPfirms,thoughinevitablyaffectedbythestateofourmarkets,areatributetotheirextraordinarytalent.

Thereismuchmoretobedone,ofcourse.Butitgivesusbothgreatconfidencetoknowthatwehavecomesofar,soquicklyandthatwecanseethatourcommitmenttoprovideoutstandingqualityofservicetoour clients is more relentless than ever.

Thriving in a complex world. ThecombinedKPMGEuropeLLPnow comprises interests in ELLP firms inGermany,theUK,Switzerland,Spain,theNetherlands,Belgium,Luxembourg,TurkeyandsixCIScountries,includingRussia.InOctober2010weweredelightedthatNorwayandSaudiArabiaagreedtojoinELLP.Theorganisationwillnowspan16countries,employing30,000people.

Thekeytooursuccessliesinhowwemarshal our collective resources to meet thefastchangingneedsofourclients.

Thatisespeciallyimportantatatimeof continuing short-term economic uncertainty.

Itisallthemorecrucialwhenourclients,likeus,areadjustingtomuchdeeper,permanentchangesintheglobaleconomy.

Wehaveemergedfromthefinancialcrisisandthedeepestdownturnfor60yearsintoanewandlesscomfortableworld.Theeconomicandculturalenvironmentismorediverseandmanyoftheoldcertaintiesweoncedependedonhavedisappeared.Lifeismorecomplex;butitisalsoimmeasurablymore interesting.

Inourview,businesssuccessislesseasytoachievetoday.Butweshareabeliefwithmanyofourclientsthatworld-classcompaniescanthriveinthis new environment.

ThenewKPMGglobalbrandposition–‘cuttingthroughcomplexity’–neatlysummarisesthevitalroleweareplayinginhelpingclientorganisationsfindefficientandeffectivewaystosustaintheirgrowthandprosperityinacomplexworld.

A strategy for growth. Duringtheyearweundertookafundamentalreviewofourstrategy,atglobalandregionallevel,topositionourselvesforsuccessinarapidlychangingworld.Wehaveidentifiednineareasforparticularfocus(seeboxabove).Thesecoverarangeofindustrysectorswhereweexpecttoseefundamentalchange,service areas where we anticipate growingclientneeds,andgeographicfocustorecognisethatChinaandtheEmergingmarketswillplayanincreasinglypivotalroleintheglobaleconomy.

our ELLP structure puts us in a strong position to implement these plans vigorouslyandconsistently.


KPMG Europe LLP Chairmen’s statementcontinued

WeareconfidentthattheELLPfirms,connectedacrossgeographiesandsectors,canreallymakeadifferencetoclientsastheyconfront these challenges.

An ambitious business plan. Thestrategyissupportedbyanambitiousbusiness plan for the KPMG Europe LLP group which will involve significant investmentoverthenextthreeyears,asRichardBennisonexplainsinhisChiefoperating officer’s report.

Weareeagertoincreaseourcollectiveshareoftheauditmarket.Growthherealwaystakespatience;ourestablishedlongtrackrecordofhighqualityperformancewhileservicingadiverserangeofclientsis helping us to achieve this.

EquallyweseebigopportunitiesforourTaxpractice,anareaofgrowing,globalcomplexitywhereourclientsarelookingforamorespecialisedlevelofadviceandsupport.

Wealsoseemoreimmediateopportunitiestogrowouradvisorybusinesses.WehaverecruitedalargenumberoftalentedpeoplefromoutsideKPMGthisyeartoboostourcapabilitiesandeachELLPfirmisnowactivelylookingtogroworganicallyandthroughacquisitions.

Clients and people. Ultimatelytheseplansareallaboutourclients.Wetalkedlastyearaboutbuildinganintenselyclient-centricorganisation.Thatgoalremainsrightatthetopofouragenda.

Weareconcentratingonmanagingourkeyglobalaccountstobringtheseclientsmoreofourideas,skillsandservices.Wearealsomaintainingaverystronglocal presence with clients operating in our national markets.

But enhancing our client service dependsonthepeopleweemployandonbuildingahighperformanceculturewithinwhichtheycanexcel.Theyareabsolutelycriticaltothecollectivesuccessofourbusinessandtoourclients’ success.

Mobilityisvital.Wearemakingsureourpeoplecanmovequicklyacrossourmarkets to be available to clients whenever theyareneeded.Itisexcellenttoseethat more than 200 people were on secondmentbetweenELLPfirmsduringtheyearandanother500pluswereinvolvedininternationaltransfers.

Developing the client service skills of ourpeople,ateverylevel,isanotherkeyfocus.Asourpeopleprogress,wewant them to feel comfortable to act astrustedstrategicadviserstoourclients,bringingthemthebenefitofall our capabilities.

Competitionacrosstheglobaleconomyisincreasingallthetime.India,Chinaandotherfastgrowingeconomiesaredeterminedtochallengetheoldeconomicpower base.

our skills remain our chief competitive advantageandweneedtobringthemtotheglobalmarketplacemoreefficientlyandinawaythatoffersourclientsevermore value.

Itisachallengeweneedtorisetoandwearedoingsoadmirably.


Quality. Theregulatorylandscapeisgrowingmorecomplex.Nationalgovernmentshavemovedfromunderstandingwhatcausedthefinancialcrisistoworkingouthowtheycanimprovethesystemtomakesureitdoesnothappenagain.

Asubstantialamountofnewregulationisinprospectinfinancialservices,andriskisrisingtothetopofboardagendasinalmosteverysector.

Whiletheauditprofessionwascertainlynotthecauseofthecrisis,itsfutureroleisbeinghotlydebated.Somehaveopenlyquestionedwhetherauditorsbring enough scepticism to the role.

Wethinkthisisareasonablechallenge–andonethat,ironically,onlyunderlinestheimportanceoftheaudit.Wecertainlyagreethat,tobeofrealvalue,anauditmustbeconductedwithascepticalandquestioningmind.Aboveall,thequalityofourcollectiveAuditpracticesandourauditpartnersacrossELLPfirmsremains our single most important strategicpriority.

MuchattentioninEuropeisfocusedon the European Commission’s Green Paperonthefutureofauditing,ledbytheinternalmarketsCommissioner,MichelBarnier.Weareparticularlyinterestedinoneareaofthedebate–whether there is a place for some form ofwiderriskreportingalongside,orinadditionto,theauditreport.

Asauditors,wearebetterplacedthanmosttoprovideassuranceonthewidersetofrisksfacedbyabusiness–includingthosethataremoreforward-looking.Weare eager to take on that role.

WearealsostrengtheningourownGovernanceprocedures.InresponsetorecommendationsfromtheICAEW’sAuditFirmGovernanceWorkingGroupwehavesetupaPublicInterestCommittee–ourequivalentofapanelofnon-executivedirectors.SirSteveRobson,TomDeSwaanandDr.AlfredTackehaveagreedtotakeonthatroleandwelookforwardtoreceivingtheiradviceandguidanceaswemoveourgroupforward.WewouldalsoliketotakethisopportunitytothankthoseBoardmemberswhohaveretiredthisyearfortheirinvaluablecontributionandtowelcomeournewmembers.

Outlook. WecouldnothavefacedamorechallengingeconomicbackdroptothefirstthreeyearssincetheformationofKPMGEuropeLLP.Wearebothimmenselyproudoftheworkpeopleacrossthegrouphavedonetoenableusto make such significant progress in this economic environment.

2011islikelytobeanotheryearofgradual,andprobablyuneven,recoveryfortheglobaleconomy.Ourclientswillneedtocontinuetofocusonimprovingtheirfinancial,riskandoperatingprocesses to prepare themselves for bettertimes.Manyofourclientswillbe in a position to grow.

WeareconfidentthattheELLPfirms,connectedacrossgeographiesandsectors,canreallymakeadifferencetoclientsastheyconfrontthesechallenges.

Ournewbrandingsendsoutastrongmessagetothem.Itemphasisesthefactthat–whileourvaluesasabusinessremainthesame–thesupportweprovidetoourclientsisnowsharper,morefocused,moreusefulandincreasinglyvaluable.

Italsosaysthat,despitetheimmediateeconomicchallengestheworldcontinuestoface,weseemanygoodreasonstobe optimistic.

Finally,wewouldliketothankallourclientsforthetrusttheyplaceinusandallourtalentedpeoplefortheirunstintingpassioninhelpingourclientsexcel.

John Griffith-Jones. Joint ChairmanRolf Nonnenmacher. Joint Chairman


Richard BennisonChief operating officer


KPMG Europe LLP Chief Operating Officer’s review.

2010wasayearofsubstantialachievementforKPMGEuropeLLP,andwenowhavea base for significant future growth. But securing that growth means we must continuetoprove,dayinanddayout,thatwearerelevanttoourclients’needs–moreintouchwiththeirchallengesandbetterequippedthananyoneelsetohelpthemsucceed.


€4,065m2010 revenues

WehaveexperiencedsignificantexpansionandhugechangeinthethreeyearssinceKPMGEuropeLLPwasformed.Thebenefitsofthecombinedgroupcontinuetogrowandtheexpansiongivesusevengreaterabilitytoinvesttomeetchangingclientneeds.

Wehavebeguntodemonstratehowpowerful an impact we can have when wemobiliseourpeople,ourresourcesandourcapabilitiesacrossborderstohelpourclientsovercomethecomplexchallengestheyface.

Thepowerofthisco-workingismostclearintheexcellentworkwehavedoneforourglobalandnationalmarketclients,asIhopethisreportdemonstrates.

OurabilitytodrawonarichdiversityofskillsandtalentfromacrosstheELLPfirms to put the right teams to work at therighttimeexplainswhywewonsomeofourmostexcitinginternationalassignmentsduringtheyear,includingatINGandNorilskNickel.

Ourpeopleareincreasinglycomfortableworkingcloselytogetheracrossborders.Thereisarealreadinesstoshareinsights,experienceandexpertiseforthebenefitofourclients.Thistypeofdeepcollaborationhasnowbecomeawayoflifeforus.

Atatimewhenbusinessesarebecomingmoreglobal,capitalmarketsareconverging,regulationisbecomingmorecomplex,andeconomicpowerisshiftingrapidlyfromwesttoeast,ourabilitytomakethoseconnections–irrespectiveofnationalborders–setsusapartinthemarketplaceandwillincreasinglyunderpinourcollectivegrowth.

Throughoutallthesechangesqualityremainsuppermostinourminds.Oursystemofqualitycontrolsisdesignedtomeettheexpectationsofourclientsaswellastherulesandstandardsissuedbynationalregulatorsandprofessionalinstitutions.Itencompasses:

• leadershipresponsibilityforquality

• highethicalstandards

• strongpeoplemanagement

• rigorousproceduresforacceptanceandcontinuanceofclientrelationshipsandengagements

• processeswhichdelivereffectiveengagementperformance;and

• monitoringactivities.

High performance in a volatile market. Thegroup’sreportedrevenueof€4,065millionwasup16%comparedtotheprioryear,asnewmemberfirmsintheNetherlands,CISandLuxembourgjoinedthegroup.Onaproformabasis,whichtreats all countries as having been in the groupthroughoutbothyears,revenuesfellby3%(to€4.3billion).

Themarketplaceforourclientsandourfirmsremaineduncertainin2010.Formanyofourcorporateclientsitwasacase of concentrating on the basics to improveperformance,efficiencyandcashandcostcontrol.Withourhelp,manyarewellplacedtotakeadvantageofopportunitiesastherecoverygathers pace.

Infinancialservices,unprecedentedregulatorychangeandtheneedtobuildmoreresilientcapitalstructuresresultedindemandfrombanks,insurersandinvestmenthousesforourhelp.Werespondedquickly,bringingtogetherourspecialistsinkeymarketssuchasGermany,theUK,Spain,Luxembourg,SwitzerlandandtheNetherlands,toguideandsupportourclients.

ENRwasbuoyantandwewonmajorassignmentsinthissector,suchasguidinguC RUSALinitslandmarkUS$2.2billionHongKonglisting(thefirstofitskindforaRussianbusiness)andourcontinuedworkwithLUKOIL,Russia’sbiggestoilcompany.


KPMG Europe LLP Chief Operating Officer’s reviewcontinued


Itwasatoughenvironmentforourpublicsectorpractice,especiallyinthosecountrieswheregovernmentsintroducedausteritymeasurestotacklesoaringnationaldeficits.Nevertheless,wecontinuedtoprovidehighqualityadviceandservicestoassistgovernmentsinachievingtheirstrategicobjectives.

OurAdvisoryServicesgrewoverall,drivenbyourincreasedcapabilityandrelevancetoourclients,thoughthethreeAdvisorygroupsfareddifferently.OverallgrowthwasdrivenbytheverystronggrowthofourPerformance&Technologypractice(+17%).WithM&Amarketsstillrelativelyflat,ourTransactions&Restructuringpracticefocusedonprovidingclientswith‘throughthecycle’advice,drawingonoursubstantialsectorknowledgetohelpthemtoprepareforgrowth.Revenuesfellby4%,agoodperformanceconsideringthelimitedtransactionactivity.

AfteraslowstarttotheyearourRisk&Compliance practice saw business pick upstronglyinthesecondhalfoftheyeartoendwithrevenuesdown8%.

Pricingpressurecausedauditrevenuestofallby7%,butwewereencouragedbythewinningofnewprestigiousauditmandatesinaverycompetitiveenvironment.Wewonimportantnewassignments,includingCapitaintheUK,ABNAmrointheNetherlandsandEnBWinGermany.Inresponsetoclientdemandswehavealsodevelopedawiderrangeofassuranceservices,inareassuchassustainabilityreportingandinternalrevenuecontrols.Weexpectthistodriveadditionalopportunitiestoaddvalue to clients.

Wehaveastrongpresence across all the countries in which the ELLP firms operateandabroadrangeofexpertiseonthecomplexissuesour clients face.

OurTaxpracticeperformedwellasweputmoreofourresourcesintoprovidingclass-leadingadviceonpensions,internationaltaxstructuring,transferpricingandthemanagementofindirecttaxes.Thelackoftransactionsimpactedourperformance,leadingtoa2%overallfall in revenues.

Priorities for growth. ThenewglobalgrowthstrategyforKPMGhasalsogalvanisedourthinkingon how we can better serve our clients andofferourpeoplegreateropportunity.Ourambitionistohelpbothexcel.

our growth priorities in KPMG Europe LLParefullyalignedwiththeprioritiesofKPMGfirmsglobally.

Thedominanceofoil,gas,mineralsandmetalsinsomeofthemarketsservedbytheELLPfirmsmeanswehavearemarkableopportunitytocombineoursectorknowledgeandexperienceintheCIS,theUKandtheNetherlandstohelpclients overcome global challenges. WithNorwayandSaudiArabiajoiningKPMGELLP,thecaseforgivingENRprominence is all the more compelling. Both countries are rich in natural resourcesandhavepowerfulsovereignwealthfunds,whichareincreasinglyimportant to international investors.

Themoreweintegrateasafirmthelessweneedtoreplicateservicesineverymarket.Wearethereforebuildingcentresofexcellencefromwhichwecandeployourbestresourcesquickly.WewillbedrivingtheENRgrowthopportunityfromournewlyestablishedcentreofexcellencein Moscow. Likewise,tosupportthegrowthstrategy,wehaveestablishedacentreofexcellenceforfinancialservicesriskandregulationinLondon.


Thenewglobalgrowthstrategyfor KPMG has also galvanisedourthinkingon how we can better serveourclientsandoffer our people greateropportunity.

Ambitious growth plan. Thereisnoroomforcomplacency,however.Growthwillonlycomeifweproveourselvestobemoreandmorerelevanttoourclients.Weareconfidentwecandothis,andplanningforthenextthreeyearsisbasedonbuildingthecapabilitieswewillneedtomeetgrowingdemandfromourclients.

Weexpecttoincreaseourheadcountof client-facing staff within ELLP firms from23,000today(totalstaff30,000)tomorethan32,500in2013.Achievingthat,whencompetitionfortalentissointense,willbeachallenge.Itisvitalweprovideourpeoplewithawinningculturewithinwhichtheycanreallyflourish.

OurorganicgrowthwillbesupplementedbybringingnewcapabilitiesintoKPMG,particularlyinthePerformance&TechnologyandRisk&Compliancepracticeareas.Wehavealreadymadesmallacquisitionsinthetechnologyserviceareaandrecruitedanewportfoliosolutionsgroup.Weexpectmore to follow as the consulting marketconsolidates.

Wehaveastrongpresenceacrossallthe countries in which the ELLP firms operateandabroadrangeofexpertiseonthecomplexissuesourclientsface,whetherthatisoptimisingbusinessmodeldesign,integratingnewacquisitions,disposingofnon-coreassetsordesigningefficient back office functions.

Looking ahead. Thenextyearwillnotbeeasy.Thereare still concerns over the future of theEuropeanandglobaleconomies.Nevertheless,ourunstintingfocusonprovidinghigh-qualityservicesandourdeterminationtofindanddevelopthemosttalentedpeopletohelpourclientssucceed,irrespectiveofwheretheyarelocated,willmeanthatthereisnoshortage of opportunities for us.

Iamconfidentthatin12months’timemoreofourexistingclientswillbebenefittingfromthisapproachandthatwewillbeworkingwithnewclients,includingmanyoftheleadersinthesectors we are prioritising.

Richard Bennison. Chief operating officer



KPMG Europe LLP Managing Our Business.

Ourgoalistoensurethat,infastchangingeconomicconditions,weprovideclientswithworldclassinsightsintohowtotacklethechallengestheyfaceandseamlessaccesstothefullrangeofexpertisewehaveacrossKPMG,inELLPandglobally.

Toachievethiswemanagethebusinessacrossthreedimensions–ourfunctionalexpertise,ourclientmarketsandourcountrycommunities.

Our functions. Ourfunctionsdevelopworldclassexpertisetohelpclientsmeetexistingchallengesanddevelopnewpropositionstohelpthemtackleemergingissues–copingwithsustainabilityconcerns,forexample,ordealingwithnewtechnologieslikecloudcomputing.

ManagingourfunctionalexpertsonanELLPwidebasishasgivenclientsimprovedaccesstoresources.TheseexpertscouldbebasedintheirowncountryorinoneofourELLPcentresofexcellence.

Ourprimarypurposein creating KPMG ELLPistoprovidereal benefits for our firms’clients,largeandsmall.

Wesimplifiedourfunctionalstructureduringtheyeartostreamlinemanagementandjoinupcomplementaryskills.Forinstance,combiningourtransactionscapabilityandourrestructuringexpertisehasallowedustoofferclientsadditionalinsightsastheymanoeuvrethroughthedifferentphasesofthebusinesscycle.

Wenowoperatefivefunctions–Audit,Tax,Performance&Technology,Risk&ComplianceandTransactions&Restructuring.Theirachievementsduringthelastyeararecoveredinthebusiness review section of this annual report.

Our client markets. Wemanagetherelationshipwithourfirms’ largest clients at European industrysectorlevel.Thisenablesustodevelopdeepunderstandingoftheselargecomplexorganisationsandprovidethemwithsectorinsightsandsolutionsthat meet their specific situations.

our sector communities allow us to pool anextensiverangeofexperienceacrossdifferentgeographiesandmakethisavailabletoallclients,whatevertheir sizeandpositionin,usually,complexsupplychains.

Wemanageourinteractionswithmediumsizeclientsonasectorbasisatcountrylevelandourrelationshipswithsmallerclientsbycountryregion.Thesevibrant entrepreneurial organisations needabroadrangeofbusinessadvicefrompeoplelocatedinthesamecityorregionandtheELLPfirmsservethemthroughourextensivenetworkofNationalMarketoffices.

KPMG Europe LLP|AnnualReport2010|11AnnualReport2010|11 report 2010 | 11

Our countries. Thethirddimensionofouroperatingmatrixisthecountrydimensionanditcontinues to perform a vital role.

Whilstmanyclientsoperateonaglobalorcross-borderbasis,allofthemarealsodeeplyrootedintheirlocalmarketplacesandcommunities.

Ourcountryleadershipteamsensureweengageeffectivelywithclients,inspireourstaffandmeettheexpectationsofthewiderangeofstakeholdersweserve–clients,localcapitalmarkets,regulators,governmentsandthebusinessandlocalcommunities in which we operate.

Ourcountryoperatingmodelisflexible.Itcanaccommodateourlargestcountriesandoursmallercountries,suchastheNorwegianpractice.Overthelastyearwecontinuedtoalignourinternaloperatingmodelsandin-countryprocesses to share the benefits of consistencyandbestpractice.

Benefitting from economies of scale. WhilsttheprimarygoaloftheELLPistoserveclientsbetter,wealsobenefitfromeconomies of scale which allow us to investinnewskillsandservicesandtoimprove our operational effectiveness. Lastyearforexample:

• ourintegratedoperatingmodelnotonlyallowedustosetuptwonewcentresofexcellence,butmeantweattractednewtalentandteamstothefirm across multiple countries

• wemadesubstantialprogressinintegratingandoff-shoringourknowledgemanagementandresearchcapabilities;and

• insupportfunctionswealsocontinuedtorolloutoursharedservicesapproachinareassuchasfinance,technologyandinfrastructure.

Thisyearwewillcontinuetouseourincreasedscaletobenefitclients,achieveworldclassstandardsinourinternalprocessesanddeliverqualityineverythingthatwedo.

12|KPMGEuropeLLP|AnnualReport2010


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.


-6.6%*Audit revenue

2010:€1,787million

* on a proforma basis for the entities in the legal group at 30 September 2010 at constant exchangerates.

Joachim SchindlerHeadofAudit

Business review & marketplace.

Audit.

Ourclientsaredealingwithincreasingcomplexitythroughchangingaccountingstandardsandchangingregulation.Theyalsofacegreaterscrutinythaneverbefore.Tohelpthemcopeweareprovidingawiderrangeofassuranceservices–beyondthefinancialstatementaudit.Separately,policymakersandthegeneralpublicareasking:canauditorsdomoretohelpprevent another financial crisis? Wewelcomesuchdialogueaboutenhancingtherole,valueandqualityoftheaudit.Forourpartwearerespondingintermsofourtechnology,ourpeople,andthedeterminationtobuilddeeperandmoretrustedrelationshipswithourclients,investorsandregulators.

Theexternalaudithasanimportantroleinhelpingtoupholdtrustandconfidenceinourcapitalmarkets.However,recenteventshavequestionedwhetherauditsstillsatisfytheneedsofthemarketsandthebroaderpublic.Fairvalueaccountingisunderthemicroscope,andsome,includingtheEuropeanCommission,areaskingiftheauditshouldcoverawiderrangeofforward-lookingrisks.Wewelcomethisdebateandanymeasuresthatenhanceauditquality.

Wearerespondingtomarketneedsthroughawiderrangeofassuranceservices.Our‘MaximumAssurance’suitecoversanumberofdifferentassuranceservicesincludingsustainabilityreporting,financialforecastsandinternalcontrolassurancetonameafew.WehavealsoprovidedextendedassuranceservicetoclientssuchasRentokilintheUK.Wearerollingthese services out across ELLP firms.

Performance across the countries has beenmixed.Overall,Auditrevenuehasdecreasedduetochallengingmarketconditions.However,wehaveimprovedour margin through a combination of robustpricingandstrictfocusoncost.

Wehavealsowonsomeimportantnewclientsincluding,ABNAmrointheNetherlands,EnBW–Germany’sthirdlargestelectricityproducer–andCapitain the uK.

Inresponsetothemarketchallenges,wearemoreeffectivelyleveragingtechnology.OurbiggestinvestmentiseAudIT–ournewelectronicauditfilethatincorporatesmethodology,guidanceandindustryknowledge.Thiswillhelpusdelivermoreefficientandeffectiveaudits,whilstimprovingourclientservicebyallowingustofocusontheissues that matter most to our clients.

ThedeploymentofeAudITisprogressing well. During the summer period,intheregionof11,000peoplehavebeentrainedonthetool.ThishasrequiredamammotheffortbyourLearning&Developmentdepartmentandinvestmentinequipmentandinfrastructure.

ELLP firms have a powerful presence inauditacrossourmarkets.Forexampleweaudit57%ofDAX30companies,22%oftheFTSE100,and24%ofSwitzerland’squotedcompanies.Wearealsoconsideredtheauditmarketleaderin the important emerging market of russia. our strong presence in each of our national markets is essential to our success.

WeintendtogrowourAuditpracticeacrossELLPfirmsintheyearahead,withhealthygrowthinthemorematuremarketsandhighergrowthinthemoreemerging markets.



-2.2%*Tax revenue

2010:€865million

Ernst GröblHeadofTax

Tax. Ourclients’taxaffairsaregrowingevermorecomplexthanks to the economic crisis andtheeffectsofglobalisation.Increasinglytheylooktoustodesigntailor-madetaxstrategiesallowing them to be both compliant andtaxefficient,oftenacrossmultiplejurisdictions.Providingthissupportrequiresdeepunderstandingofthechallengeseachofthemfaces,sothatwepreciselymatchtheirneeds.

Asgovernmentsreducedeficitsbuiltupduringthecrisis,taxauthoritiesareaggressivelychasingcorporateandpersonaltaxes.Theyarealsointroducingnewones,suchasgreentaxesand,inbanking,leviesonexecutivebonuses.Lowtaxregimescontinuetocompetehardtoattractbusinesses.Theglobaltaxlandscapeishyper-competitiveandchangingfast,andclientsneedhelpnavigating it.

Afteradifficultyearin2009,ourTaxpracticebenefittedfromourinvestmentsinclientrelationshipsandincreasedmarketactivitywithgrowthinmanycountries.

TaxglobalisationisoneoftheninepriorityareasforKPMG.Wecontinuefieldingtherightpeopletohelpclientscopewithincreasingcomplexityinindirecttax,transferpricingandpensions.

Moreaggressivetaxcollectionhasmeantmoredisputesbetweentaxpayersandauthorities,andwearehelpingclientssuccessfullyresolvesuchdisputesthroughmediation.

TheGermanandUKtaxauthoritiesaretargetingindividualtaxevasion.Manynew clients are seeking our help to regularisetheirtaxaffairs.

Toooftencompaniesre-engineertheirsupplychainsorchangetheiroperatingmodelwithoutconsideringtaxefficiencies.WeareworkingcloselywithcolleaguesinPerformance&Technologytohelpclientsbuildtaxplanningintochange programmes.

Asbusinessesmoveintonewmarkets,theymustbesuretheyaremeetingalltheirobligationsinmultiplejurisdictions.Thereisgrowingdemandforco-ordinatedglobalcomplianceservices.Weareleadingthefieldinhelpinglargeglobalclientscopewiththischallenge,winningeightmajorproposalsincludingGSKandSyngenta.

Large companies face significant financial risks in managing their pension schemes,particularlyintheUKwheremanydefinedbenefitschemeshavelargedeficits.Wehavepioneeredwaysfor clients to manage their obligations flexiblyandhavehelpedboardsdevelopclear strategies for managing pension risk.

Indirecttaxes,suchasVAT,arerisingacrossEurope.Managingtheflowofthesetransactionaltaxesthroughfinancialreportingsystemsisamassivetask.Thehigherthesetaxesrise,thegreatertheneedforclientstoplanandbuildrobustreportingandpaymentsystems.

Managingexpatriatetaxaffairsforglobalcompanies remains a growth area. our proprietaryShort-termBusinessTravellersoftwareishelpingcompaniesscheduledeploymentsandmanagetaxpayments.

TheTaxpracticesinourSwiss,UKandGermanfirmsareparticularlyactiveinsupportingfamilyoffices,agrowingsource of global investment capital.


Business review & marketplace. continued

+16.9%*Performance & Technology revenue

2010:€457million

Aidan BrennanHeadofPerformance&Technology


Performance & Technology. Boosting business performance almostinevitablyinvolvestechnologythesedays.Thecomplexity,costandupheavalinvolvedintransformingbusinessmeans our clients are looking forindependenthands-onexperienceandinsighttofindandimplementthesolutionthatexactlymeetstheirneeds.WehavetargetedPerformance&Technologyasaprioritygrowtharea so we can mobilise our expertiseincostoptimisation,businessintelligenceandtax-efficienttransformationto help clients meet their business challenges.

Technologyisplayinganincreasinglyimportantroleinhelpingourclients–acrossallsectors–runtheiroperationsmoreefficiently.Financialservicesclientsarefacinghugechangeinbothriskandregulationandwanttobasetheirbusinessdecisionsonthefullrangeoffinancialandrisk information. Corporate clients are shifting their attention from tactical cost-cutting to investing in long-term performance improvement which will accelerategrowth,ofteninvolvingthedeploymentofbusinessintelligenceandsharedservices.

Inthepublicsector,thechallengeistodelivermorevaluewithless;protectingfront-lineserviceswhiledrivingupproductivitytocopewithunprecedentedcutsinfunding.

Demandforourserviceswasstronglastyear.ClientsincreasinglyrecogniseourbreadthanddepthofexperienceinplatformssuchasSAPandOracleandinnewareassuchascloudcomputing.Theyalsowelcomeourindependentadviceandourprogrammemanagementskills–combinedcapabilitieswhichdifferentiateusfromthebigstrategyhousesandsystemsintegrators.

Thisgrowingrecognitionishavingapositive impact on our results. our Performance&Technologyfunctionwasthefastestgrowingpartofthebusiness,achievinga17%increaseinrevenue,withparticularlystrongperformanceintheSpanish,RussiaandCIS,andUKfirms.

Weareexpandingourskillsbase.IntheUKfirm,forexample,wehired425newpeoplelastyear,including39atpartner

anddirectorlevel.WealsoboughtbusinessesincludingAnalitica(theHyperionplanningspecialists)andfurtheracquisitionsarebeingassessed.

TheformationofKPMGEuropeLLPhashelpedusbringtogetherourbestteamsacrosstheELLPfirmstowinanddeliverinternationalcross-borderengagements.TeamsfromtheDutchandUKfirmsassistedINGinthepreparingfortheseparation of its global insurance businessfromthebankingdivision. TheUKandSpanishfirmshelpedTelefónicaontheiracquisitionofJahah,theirHRtransformationinEurope,taxassistanceontheacquisitionofVivo,andthereorganisationoftheirresearch&developmentactivitiesinSpain.

OtherkeyassignmentsduringtheyearincludedprovidingbusinessintelligenceandtechnologyadviceonLloydsTSB’sGalaxyinternetbankingprogrammewhichwilltransformthewaycustomersinteractwiththebank’sdigitalchannelsandwilldeliveracompellingonlineexperience.WealsohelpedBPmakesavingsthroughcost optimisation.

WearehelpingAEGON,theinsurancegiant,prepareforchangesbroughtaboutbySolvencyII.

Cross-functionworkingbringsadditionalbenefits to clients. our Performance & TechnologyandTaxpractices,forinstance,areworkingincreasinglycloselytounlockvaluebyhelpingclientsbuildefficienttaxplanning into their business change programmes.


-7.7%*Risk & Compliance revenue

2010:€455million

Carsten Schiewe HeadofRisk&Compliance


Risk & Compliance. Riskisahighpriorityitemonboardroomagendas.Acrossallsectorsourclientsareconfrontedbyamazeofincreasinglycomplexregulation.Theirchallengeisnotonlytoremaincompliant,buttodosoinanefficientandcost-effectiveway.OurRisk&Compliancepractice across the ELLP firms harnessesourskillsandoursectorexpertisetohelpclientsturnrisktobusinessadvantage.

Ourclientsnowfindthemselvesinasignificantlymorecomplexregulatoryenvironment at a time of continuing economicuncertainty.Newregulationsandguidanceoncorporategovernancehavemultipliedsincethefinancialcrisisstruck. But banks are not alone in facing thischallenge.Managingcomplexfinancial,environmentalandreputationalrisks is now a crucial part of life for businessleadersacrossallsectors.

Clientsdonotexpectustoeliminatetheirriskcompletely.Insteadtheywantourhelptotakecontrolofit.Byembeddingeffectiveandefficientriskmanagementandcontrolprocesses,wearehelpingboardstotransformriskintobusinessvalueandcompetitiveadvantage.

Ourperformanceduringtheyearreflectsthe growing importance of risk in the corporatelandscape.Therevenuesof thelegalgroupwereslightlydownfortheyearasawhole,reflectingthefragilityofeconomicrecoveryinmanycountries.Butwesawrapidpickupinactivityinthesecondhalfoftheyear,thankslargelytoasharpincreaseinregulatoryactivityinfinancial services where new rules such asBaselIIIandSolvencyIIhavebegun to take shape.

Weexpecttoseethisstronggrowthtrendcontinuingandareanticipatingfurthergrowthnextyearbecauseoftheheightenedfocusbyourclientsonriskandregulation.

Toachievethisgrowthweareconcentrating our resources where clients mostneedourhelp,prioritisingbanking,

insurance,energyandnaturalresources,communicationsandmedia,thepublicsectorandkeyindustrialsectors.

Importantassignmentsweworkedonduringtheyearincludedlargetransformationalprojectsforclientsinthebankingandinsurancesector,especiallywithregardtotheirriskandfinancefunctions.Otherkeyprojectsincludedtheimplementation of effective internal control systemsandtheenhancementofITanddatasecurityforclientsintheenergyandnaturalresourcessector,riskassessmentsfor big clients in the communications sectorandmajorforensicinvestigationsacrossmanyindustries.

ThroughtheELLPfirmsworkingcloselytogetheracrossallofourmarkets,wearewellpositionedtomoveourpeopleandourteamsquicklytowheretheyareneededbyourclients.

Technologyisanintegralpartofourservices.Wehavedevelopedmarket-leadingskillsinkeyareasincludingdatacleansingandanalysisaswellasinformationanddataprotectionandsecurity.

Clientsalsolooktoustoanticipateandguidethemthroughproposedchangesinregulationandgovernanceprocedures.Wehavenowpilotedcentresofexcellenceforfinancialservicesriskandregulatoryaswellasclimatechangeandsustainabilitytokeepclientsabreastofchangesandtofosterathree-waydialoguebetweenthem,ourselvesandotherstakeholders,in particular regulators.


Business review & marketplacecontinued

-4.3%*Transactions & Restructuring revenue

2010:€716million


Simon CollinsHeadofTransactions&Restructuring

Transactions & Restructuring. Witheconomicrecoveryslowandunevenin2010,ourclientsfoundthemselvesoperating in a nervous market. ThoughM&Adidpickup,manybusinessescontinuedtofocuson restructuring their operations andpayingoffdebttopreparefor sustainable long-term growth.Inthesedifficulttimes,businesseshaveneededmoretrustedrelationships,deepsectorinsightsand‘throughthecycle’capabilities,whichourcombinedTransactions&Restructuringteamswereabletoprovide.

RevenueforTransactions&restructuring across the legal group fortheyearcameinat€716million,asatisfactoryresultgiventhedifficultmarketconditions,partlyduetoaverystrong performance in restructuring. WemaintainedourpositionintheThomson/ReutersFinancialAdvisorsandAccountantsleaguetables,beingrankedNo.1againin2010.Ourlandmarkassignmentsfor2010included:

• advisingthecreditorsofDubaiWorld,thefirstmajorrestructuringintheMiddleEast.

• adviceontheUS$2.2billioninitialglobalofferingofUCRUSALsharesontheStockExchangeofHongKong,foraconsortiumofinternationallenders.

• theFirstQuenchRetailingadministrationappointment;and

• advisingBridgepointonthe£955millionsaleofPetsatHome,thelargestsecondarybuyoutsince2008.

World-classcompaniesandsectorleaderswereinastrongerpositiontomakeacquisitions,seeingthisasanidealtime to bolster their competitive position throughdeals.Theywereabletoraisethenecessarycapitalwithrelativeease.But smaller businesses were not so well placed,leadingtoapolarisationofthecapital markets.

RestructuringworkincreasinglycalledforM&Aadviceasrenegotiationofborrowings often comes with a requirementtodisposeofunder-performingassets.Bymovingpeoplearoundourteams,weprovidedclientswiththerightskillsandourpeoplewithbroaderexperience.

Privateequityclients–oncehappytoplanacquisitionsoncashflowprojections–askedustotakeamuchmorescepticalviewondealstoensurethatproposedtransactionsweresoundlybasedandsustainable;alikelylong-termtrend.

ThenewglobalgrowthstrategyforKPMGprovidesuswithexcitingopportunitiestodevelopourclientbaseinkeysectorssuchasfinancialservicesandenergyandnaturalresources.

Innovationisessentialindifficultmarkets.Examplesincludethedevelopmentofourportfoliosolutionsgroup,whichspecialisesinadvisingfinancial institutions on selling or improving their assets.


Jeremy AndersonHeadofMarketsandFinancialServices

Markets – Industries. Anuncertainworlddemandsthatweprovideourclientswithadifferentlevelofsupportandadvice.Weareenhancingthewayweworktoachievethisrequirement.

Inanuncertainworld,itcanbehardforbusinessleaderstoplanfuturestrategywithfullconfidence.

Timingimportantinvestmentdecisionsisessential,asischoosingtherightmomenttomakeanacquisitionortopushthrougha business change programme.

Attimeslikethis,whatclientsvaluemostishavingasecondpairofeyestochallenge them on the best approach to theissuestheyface.Theyalsovaluethechancetoholdanopenandhonestconversationwithus.Weactasasoundingboardagainstwhichtheycan test their own thinking.

Soourjobistobringtogetherourwideexperienceofworkingwithcompaniesacrosssectorsandmarketsandtomakethisknowledgeavailabletoclientsinawaythatdovetailswiththeirstrategicneeds.

our role is to clear some of the fog from thelandscapeandtohelpourclientsplotapathforward;onedimensionofcuttingthroughcomplexity.

The market challenge. Economicrecoveryhascomebacktoourmarketsunevenly.Somecontinuetostrugglewithlowgrowthandcontinuingdisarrayinrealestatemarkets.Germanyhasbouncedbackmorestronglythanmostonthebackofanexport-ledrecoveryinunaffectedmarkets,particularlyChina.Butclientsremaincautiousandareholdingbackondiscretionaryspendingandtransactions.

Thefinancialservicessectorisveryactive,largelyduetotheseismicchangespromisedinbankingregulation.Therehasalsobeenapick-upinprivateequity,whichbecamevirtuallydormantin2009assourcesoffundingdriedup.

Inthewidercorporatesectorthereisstillagreatdealofretrenchment,althoughournationalmarketclients–smallandmedium-sizedenterprises–haveprovedmore resilient to the economic crisis than theirlargerpeers.Publicsectorclients,meanwhile,facesevereproblemsincountrieswherespendingisbeingcuttotackledeficits.Soweremainwatchfuloftheeconomicindicatorsanddeterminedlyforward-lookingonbehalfofourclients,advisingthemandhelpingthemrespondpro-activelytoemergingtrendsandopportunities.

Changing priorities. Wehavefoundthatmostclientshavethreemajorchallengesincommon:

• makingsuretheystaystableandhealthynow.

• workingouthowtheycantakeadvantageofgrowthopportunitiesinthenext12to18months;and

• identifyingwherelong-termgrowthopportunitiesmightlie;howtoexploitchangesintechnology;howrelationships with their customers are likelytoevolve;andwhatimpactthesustainabilityagendawillhaveontheir businesses.



Intheearlypartoftheyear,businesseswerefirmlyfocusedontheshort-termchallenges.Bytheendoftheyeartheywerefindingmoretimetothinkaboutthemoreforwardlookingchallenges.

A joined-up response. Asclientsassesstheirstrategicchoicesourroleistoprovidethemwithaseriesofroadmapssothattheycankeeptheiroptionsopenastheyplanforthefuture.

Wearedoingthisincreasinglybyorganisingourselvesaroundtheissuesclientsface,ratherthanaroundourownexpertise.AcrosstheELLPfirmswearejoiningupourcross-sectorandcross-marketknowledgesothatwecanbringclients a global perspective of what best practice means. Such insight is immenselyvaluabletoaglobalretailer,bankorenergycompany.Itisalsovitalto a smaller business that forms part of anindustrysupplychain.

Youwillseethisjoinedupapproachinfinancialservices,forinstance,whereour cross functional working mirrors the challenges which our clients face.

The people challenge. Buildingtrustedrelationshipswithclientsisatthecoreofourbusinessandwearedevelopingourmostablepeopletotakeonthesekeytrustedadvisorroles.

AcrosstheELLPfirms,weareworkingto make sure our people have the confidencetobuildontheirowndeepspecialismsandformbroadbusinessadvisorrelationshipswithclients.

Weareequippingourpeopletoengagewith clients on the full range of challenges theyface,sothatouradvicerelatestothecontextofwhattheyaredoingasacompletebusiness.Thisresultsindialoguewithourclientswhichismorevaluableforthemandmorerewardingfor us.


KPMGtranslatedthetheoryintotangibleandsustainablebenefits,settingthebenchmark

for other functions within Barclays.

Client focus: A case study.HelpingBarclayscutthroughcomplexity.

Achieving Operational Excellence. BarclaysGrouphasidentified‘OperationalExcellence’asoneofitsstrategicpriorities.Tobeginthatgroup-widejourneyPeterEstlin,nowCFOforBarclaysglobalretailbankledaprogrammetopilotandthenimplement‘Lean’,amanagementpracticethatconsiderstheexpenditureof resources to eliminate waste anddelivercustomervalueandservice,inonekeyfunction,Group Finance.

PeterEstlinaskedustoworkwithhisFinanceManagementTeamtohelpdesignandimplementLeanwithinthisfunctionusingLeanOrganisationreview,LeanProcessReviewandLeantraining.

AteamledbyDenisReynolds,Partnerfrom Financial Services in the uK firm workedwithJohnClarke,MDBarclaysGroupCentreFinance,whoprojectmanagedtheinitiative.WehelpedintroduceLeantechniquesinkeyfunctionsandprocessesandcreatedamodularjust-in-timetrainingprogrammetotransferandembedLeanskillswithinthevarious teams.

our first task was to agree the Group FinanceCostBaseandtohelptheteamselect the right processes for the Lean review through their own effectiveness andefficiencyselfassessmentprocess.OurknowledgeofBarclaysandofthewiderbankingsectorallowedustounderstandthechallengestheywouldfaceandtoworkwiththemtoidentifyareaswhere significant process improvement andcostsavingsmightbeachieved.

Thereviewidentifiedgrosspotentialannualisedsavingsinexcessof25%,witha30%reductionintotalprocessingtime,freeingupcapacityforthefunctiontodevelophighervalueservicesforcustomers.Thereweresomeimportantintangiblebenefitstoo,includingofferingteams working on the process a better work/lifebalance.

TwothirdsofpeopleworkinginGroupFinanceparticipatedinoneormoretrainingmodules,eitherthroughformalLeanTrainingorworkshopattendance.ThishashelpedtoembedLeancapabilityintheseteams,supportingtheFunction’scontinuousimprovementtowardsoverallOperationalExcellence.

Commentingonourwork,PeterEstlinsaid:“KPMGtranslatedthetheoryintotangibleandsustainablebenefits,settingthebenchmark for other functions within BarclaystouseLeantosupporttheirjourneytowardsOperationalExcellence”.

Consumer & Industrial Markets €1,469m Proforma Revenues by market industry 2010 Financial Services €1,259m

Infrastructure, Government & Healthcare €971m

Information, Communications & Entertainment €451m

Private Equity €130m


Business review & marketplace. continued

Consumer & Industrial Markets. Marketsnapshot: Business transformationisatthetopoftheagendafor clients across all the sectors we cover. Aseconomicrecoverygraduallypicksuppace,companiesarelookingathowbesttoboosttheirefficiency.Whilstcostcuttingremainsakeyissue,nowcompaniesareincreasinglylookingathowtheycanoperatemoreconstructivelytodealwithovercapacityinWesternEuropeandunevendemandacrosstheirglobal markets. Different sectors are at differentstagesintherecoverycycle.Thecommonthreadistheneedforthemalltoaligntheiroperatingmodelstosurviveandthriveinanincreasinglycomplexglobalenvironment.

Issuesahead: Convergence between the sectors is getting more important ascompanieslooktobuildbusinessesinnewsectorstomeetdemandfornewproductsandservices.Energyproviders,forinstance,arestartingtoentertheautomotiveindustrybyofferingmobilityservicessuchascustomerenergycontractsfore-cars,includingthecaritself.

Consumergoodsmanufacturersandpharmaceutical companies are working togetheronhealthyfoodproducts.AsianinvestorsarekeentobuyWesternEuropeanbrandstoobtainaccesstotheestablishedmarkets,recognisingthatbrandreputationisessential.Butincreasinglyweexpectthemtoinvestinproductioncapacityforthesebrandsathome rather than in Europe. other sectors arealreadyshiftingmanufacturing.ThechemicalindustryhasclosedhugeamountsofEuropeancapacityinrecentyears,investingintheMiddleEastinstead.Rawmaterialpricesarelikelytorisesharplyinthenearfuture–posingasignificantchallengeforcompanies.Asglobalisationmatures,webelievetherewillbefarlessdifferentiationbetweenemerging,developingandsaturatedmarkets.

Howweareresponding:• Serviceswhichspecificallycaterto

helping clients survive in turbulent timeshavebeeningreatdemand.Witheachclientatdifferentstagesintheeconomiccycle,thisdemandremainsstrongandwillcontinueinkeyserviceareas,particularlyperformance,riskmanagementandtechnology.

• Justasclientsarelookingtodifferentsectorstolearnandshareideas,weareencouragingoursectorexpertstocombinetheirspecialistknowledgewithabroadunderstandingofhowcompanies across sectors are adaptingtochange.Clientsarelookingtowardsustoprovideabroadrangeofprofessional services to support them.

• Wehavedevelopedacross-sectorManagementAgendawhichenablesustomakeproposalsandputforwardideaswhichmeetclients’individualneeds.

• Oursector-wideManagementRoundTableeventscontinuetoattractseniorexecutives,providingthemwithaforumtoshareexperience.

• Tokeepclientsuptodatewithkeyemergingtrends,weregularlypublishstudiesandwhitepaperson www.kpmg.eu

• Keyassignmentsduringtheyearincludedhelpingaglobalconglomeratebuildregionalclusterstostrengthenitsinfrastructureandgovernance.WesupportedanIndiancompanytomakeacquisitionsandhelpedaglobalpharmaceuticalcompanyoptimiseitssupplychain.

• AspatternsofinvestmentacrossEuropechange,ourstrongpresenceinkeydevelopingmarketssuchastheCISandTurkeymeanswearewellplacedtohelpthefirms’clientsgrow.

• WithNorwayandSaudiArabiajoiningKPMG Europe LLP means we will be in an even better position to help clientsintheENRandchemicalssectors to plan their growth strategies.


Financial Services. Marketsnapshot:Thefinancialcrisishasunleashedawaveofproposednewregulations,thefullimpactofwhichwilltakesomeyearstobefelt.Dealingwiththeseandwithunprecedentedgovernment intervention has now becomeacorepartofstrategyforbanks,insurersandinvestmenthousesalike.Thelastyearhasalsobeenaboutrebuildingconfidenceandmanagingscarceresourcestorebuilddepletedbalancesheets.Givenallthat,recoveryhas come back to this sector more stronglythanmanydaredimaginein2008whenglobalbankingcameveryclosetomeltdown.

Issuesahead:Manyinstitutionsarereturningquicklytoprofit,butfewexpecttogobacktobusinessasusual.Uncertaintywillcontinuetobetheorderofthedayandourclientsincreasinglyneedourhelptomakesenseofthisfast-changingworld.KeyissuesforbanksandinsurerswillbetheimplementationofnewcapitalrequirementsproposedundertheBaselIIIandSolvencyIIinitiatives.Forinvestmenthouses,theEuropeanCommission’sUCITSIVregulations come into effect in 2011.

Remunerationislikelytoremainatthetopoftheagenda.Butmorefar-reachingchangesmaybeforcedonbanks.TheUKIndependentBankingCommissionissettomakerecommendationsonthefuturestructureofbanks.Shouldtheybe broken up to foster competition? Shouldretailandinvestmentbankingbeseparated?Planningforthefutureinsuchuncertaintimesisimmenselydifficult.Managingriskhasbecomemuchmorecomplex;respondingtoregulators’demandsforgreatertransparencyrequiresnewthinking,newtechnologyand,insomecases,significant business transformation.

Howweareresponding:• Financialservicesisakeypriority

growth area for KPMG Europe LLP andweareinvestinginnewresourcesacross all our service areas. KPMG internationallyisdevelopingLondonasaglobalcentreofexcellenceforRiskandRegulationinFinancialServices,withafocusonbringingthemostskilledofourpeople,acrossdisciplines,towork together to resolve client issues.

• Thisreflectsourdeterminationtoprovideintegratedexpertise–acrossdisciplinesandgeographies–tomatchthedemandfromourclientsforabroadrangeofspecialistadviceandsupport.

• Ourintegratedapproachishelpingusbetterunderstandthechangingneedsofourclientsandrespondeffectivelywithtailored,multi-disciplinarysolutions.

• Landmarkassignments(involvingcross-borderteams)duringtheyearincludedhelpingINGinthepreparation of the separation of its global insurance business from the bankingdivision,andhelpingAEGON,theinsurancegiant,prepareforthechangesrequiredbySolvencyII.

• ForthethirdyearrunningwewonEuromoney’sBestIslamicAssuranceandAdvisoryServicesAwards.

• Wecontinuetoplayaleadroleinshapingthedebateoverthefutureoffinancialregulation.Weareactivelysupportingmovestogiveauditorsawiderremittoprovidegreaterassurancetoinvestors,akeythemein the European Commission’s investigation into the future of auditingledbyMichelBarnier.



Information, Communications & Entertainment (ICE). Marketsnapshot:OurICEclientssawthe beginnings of a recovering market in 2010,withconsumerspendingonitemssuchassmartphones,holidaysandTVsubscriptionsholdingupwell.Businessspendingbegantoreturnwithincreasesinbusinesstravelandadvertisinghelpingto foster growth in the telecommunication andmediasectors.DemandinthetechnologysectorwasenhancedascustomersusedITtorespondtochangesinregulationandaddresstheircoststructures,althoughthiswaspartlyoffsetbyuncertaintiesoverpublicsectorspending.Asgrowthreturned,clientsshiftedtheirfocusfromcuttingbudgetsto implementing more sustainable cost structuresandefficiencies,throughtechnology,sharedservicing,offshoring,outsourcingandcentralisation.Manysuccessfulbusinessesalsoconcentratedonrevenuegenerationbycapturinguntappedpayments,billingforadditionalservicesoridentifyingnewrevenuestreams.Therewasahighleveloftransactionactivityearlyintheyear,andwesawanumberofInitialPublicOfferings,particularlyinthetelecommunicationandleisuresectors.

Issuesahead:EachoftheICEsectorsisgoingthroughaprocessofevolution,presentingclientswithchallengesandopportunitiesastheyadapttothechangingworld.Forexample,withsmartphonesanddatadevicesnowestablishedinthemarket,thechallengefor communications companies will be toincreaserevenuesandmarginsfromdata.Formediacompaniesthecontinueddiversificationofadvertisingmediaandthemigrationofspendfromtraditionalmediatoonlinepresentsanongoing challenge of monetising online services.Technologycompanieshaveakeyroletoplayinhelpingbusinessesbecomemoreefficientandmeetregulatoryrequirements.NewdevicessuchastheiPadandKindle,andtherelatedgrowthinthe‘apps’(applications)market,demonstratescontinuingconsumerdemandfornewtechnologies.

Howweareresponding:• Inanenvironmentwherecompetition

formarketsharedrovedownprices,weengagedheavilyinhelpingourclientssustainandgrowmargin.OurIntellectualPropertyteamhelpedrecover substantial sums for our clients inuncollectedrevenues,ourOperationalPerformanceteamputnewcentralisedservicefacilitiesinplace,yieldingsustainablecostsavings,andourworking capital team brought focus anddisciplinetomanagingcashflows.

• ItwasabusyyearforourTransactionsteamwhereourindustryinsightshelpedourclientsenhancevaluebothonacquisitionsandonbringingassetstoamorebuoyantmarket.

• A20-strongteam,fromacrossKPMGEuropeLLPhelpedSonydesignanewfinanceoperatingmodeltosupportlocalsalesandmarketingcompaniesacrossEuropeusinganintegratedservicedeliverymodel,comprisinginternalresourcesandathirdpartyoutsourceprovider–readmoreonpage34.


Governmentandhealthcarearepriority

growth areas for KPMG firmsgloballyandwearewellplaced,withinEuropeLLP,tohelpclientsfindmoreefficientwaystodeliverservicesatatimeofshrinkingspending.

Infrastructure, Government & Healthcare. Marketsnapshot:Thefocusforourclientshasswitchedfromsurvivingthroughthefinancialcrisistodealingwithreducedpublicsectorspendingasgovernmentstrytocutnationaldebts.our government sector practice built a strongreputationduringthecrisisandwecontinuetoworkcloselywithinstitutionsresponsibleforstimulusandrescuepackages.GovernmentandhealthcareareprioritygrowthareasforKPMGfirmsgloballyandwearewellplaced,withinEuropeLLP,tohelpclientsfindmoreefficientwaystodeliverservicesatatimeofshrinkingspending.Acrossourmarketsgreatercollaborationbetweenthepublicandprivatesectorsis a growing theme.

Issuesahead:Deficitreductionwillbe the big theme for our clients as governmentslooktocutspendingwhilecontinuingtosafeguardtheeconomicrecovery.Inthiscomplexenvironmentweexpectourclientstolookforincreasinglevelsofsupportandadviceinidentifyinginnovativewaystoreorganisetheirbudgetsandboostefficiency.Performanceimprovement,cost-optimisationandassetdisposalswillcontinuetobemajorprioritiesforthem.

Howweareresponding:• WeareadvisingtheDutchPoliceforce

onsettingupsharedservicecentrestomanagetheirfinanceandhumanresources functions.

• WeareactingastheofficialtrusteeforStateGuaranteesforoneofGermany’sfederalstates.Thisisourfirstassignmentinamarketpreviouslydominatedbyoneofourcompetitorsandreflectsourgrowingreputation,followingthefinancialcrisis,inadvisinggovernments.

• TheKPMGPublicGovernanceInstitutewasfoundedinGermanyin2005topromotethehigheststandardsofefficientpublicadministration.KPMGhasnowlaunchedsimilarinstitutesintheUK,theUSandinSouthAfricagiving clients in those countries far greatervalueandinsight.

• WeworkedonEurope’sbiggesttransactioninthetransportsector,DeutscheBahn’s£1.5billiontakeoverofArriva.

• WeareadvisingthenewUKcoalitiongovernmentonwelfarereformandondefenceacquisition.

• Auditremainsastrongpartofourbusinesswithbothpublicandprivatesectorclients.Majorwinsduringtheyearincludedthebusinessservicesgroup,Capita.

• WeareprovidingstrategicadvicetotheWalloonRegionandtheFrenchCommunityinBelgiumaswellassupportingitstreasuryanddebt-management functions.


Huge opportunity in healthcare.

Client focus: Q&A with Mark Britnell. Thestateofhealthcare.

Q: Why is healthcare a priority area for KPMG?A:Itisahugeopportunityforusglobally.KPMGfirmscurrentlygeneraterevenuesofmorethanUS$600millionayearprovidingaudit,taxandadvisoryservicesto the sector. our ambition is to triple that overthenextfiveyears.

Q: Where will that growth come from?A:Indevelopedhealthcaremarkets–likeEurope,theUSandAustralia–allhealthsystemsarefacingthesameproblems.Weasnationsaregettingolder,livinglongerandspendingmoreandmoremoneyonhealthcare.Mostgovernmentsaretryingtorestrainspendingonhealth,sothatprovidesanumberofopportunitiesforustoadvisethemondifferentoptions.

IndevelopingcountriessuchasIndiaandChinainparticular,butalsoplaceslikeRussiaandBrazil,weareseeingtheemergenceofamiddle-class.Theyallwantbetterhealthcareandthispresentsuswithbothpublicandprivatesectoropportunities.

MarkBritnell–formerlythe Director-General for CommissioningandSystemManagement in the uK’s NationalHealthService–hasjoinedELLPandisheadingthe healthcare practice across KPMG’s global network of firms.Herehedescribeswhyhealthcare is one of KPMG’s globalprioritygrowthareas.


Our five global healthcare propositions1BoardGrip–goodgovernance,goodinformation,therightinternalstructures,a well run organisation.

2QualityandMarginManagement–reducingoperationalcostwhileimprovingquality.

3 ElectronicHealth–usingtelemedicineandtechnologytoimprovecareandrecordkeeping.

4 OrganisationalArchitecture–publicandprivateprovision,mergers,joint-ventures,PrivateFinanceInitiativeprojects,PublicandPrivatePartnerships.

5 CareSystemRedesign–movingcarefrom hospitals to lower cost facilities in primaryandcommunitysettings.

Q: And yet all healthcare systems are different – some public, some private. How can you have an impact in such a diverse market?A:Yesitistruethathealthcareisprimarilyorganisedalongthelinesofnationalgeographies.Butallofthetrendsinhealthcarearesimilar.Wearefindingincreasing convergence.

TheUSisseenasalargelyprivatehealthcaremarket,butinthenextcoupleofyearsfundingforhealthcarefromthegovernmentislikelytoincrease.AndwhiletheUK’snationalhealthserviceislargelyapublicsystem,increasinglyweareseeingapublic/privatemix.Sowearestartingtoseemanymoresimilaritiesinthewaywelookatproblemsandsolutions.

Q: What is KPMG doing to address these challenges?A:WithinKPMGEuropeLLP,theUKfirmhasthelargestpublicandprivatesectorhealthpractice.Wearesteepedinexperienceandhaveatrackrecordofprovidinginnovativesolutions.

WearenowusingoursuccessintheUKasatemplatetodevelopKPMG’spracticesinotherkeypartsoftheworld,inparticularGermany,theNetherlands,Singapore,Australia,theUSandCanada.

Q: We are in an age of austerity. How can we help health services do more with less money? A:Thescaleofthechallengefacingourhealth clients now means that approaches oftenneedtobetakenatthelocalsystemlevel,ratherthanorganisationbyorganisation.KPMGhashelpedneighbouringhealthcarepurchasersandproviderstoworktogethertoredesignservices,sothatincreasingdemandscanbeaccommodatedwithoutincreaseinfunding.Ourdeepexperienceintransactions means we can help to scopeandimplementthechangesinorganisational architecture that are often neededassystemsevolve.Withinindividualorganisationswealsohaveyearsofexperienceinhelpingclientsrefinetheirstrategiesanddriveoutinefficiencyfrominternalprocesses.Withmanyclientsunderhugebudgetarypressure,weareincreasinglyundertakingworkonapaymentbyresultsbasis,inordertoalignourperformancewithclients’objectives.



Private Equity. Marketsnapshot:SignificantdealactivityreturnedtothePrivateEquity(PE)marketafteradifficult12monthsthepreviousyear.Withdebtincreasinglyavailableinthemarket,wesawrenewedappetiteforlargescaleandmid-marketdeals.Asaresultwemovedfromhelping clients restructure their portfolio companies to assisting them with new investments.Althoughthemarketremainsfragile,andvulnerabletonewshocks,dealactivityisnowbackonamorestablefooting,albeitnotatthelevels seen before the financial crisis.

Issuesahead: Changes in legislation in EuropeandtheUSandnewcapitalrequirementregulationscouldhaveasignificant impact on the PE market. Ultimatelynewlegislationwillmeanourclients have to focus more on governanceandenterpriseriskmanagement.Despitetherecession,amountsavailabletobeinvestedremainhigh.However,inEuropethemarketfordealsbetween€250millionand€750millionisbecomingincreasinglycrowdedandsomeshakeoutoftheindustryispossibleinthenextthreetofiveyearsasPEhousestrytoraisenewfunds.

Howweareresponding:• Totalrevenuesacrossthelegalgroup

grewduringtheyear,withsignificantincreaseintheUKandtheNetherlands.SpainremainedamoredifficultmarketandtherewasnomajorpickupinactivityinGermany.

• WehavesuccessfullybuiltrelationshipswithmajornewkeyclientssuchasKKRandWarburgPincusbyfocusingonnewwaystoprovideourclientswithadditionalinsightsandvalue.

• Ascompetitionfordealsbuildsup, andwithequity/debtarbitragelikelytobeathingofthepast,PEhousesareincreasinglyfocusingonoperationalchange.Thisisleadingtoincreaseddemandforourserviceswhichfocuson performance improvement.

• Financialservicesisanareaofsignificantactivityandweworkedonanumberofkeydealsincludingthe£2.025billionsaleofRBS’sWorldPaybusinesstoAdventInternationalandBain Capital.

• TheNetherlandsfirmprovidedcorporatefinanceandauditservicestoBencisCapitalinitsacquisitionofRoyalSanders.

• OtherlandmarkdealsincludedBridgepoint’s£955millionsaleofthe Pets at Home business to KKr.

• IntheSovereignWealthFundarena,weadvisedcreditorbanksinvolvedintherestructuringofDubaiWorld’sfinances.


Graeme Ross HeadofInformation,Communications &

Entertainment

Rustom KharegatHeadofPrivateEquity

Dieter Becker HeadofConsumer

&IndustrialMarkets

Ulrich MaasHeadofInfrastructure,

Government & Healthcare

Jeremy Anderson HeadofMarketsand

Financial Services

30 | KPMG Europe LLP|UKAnnualReport2010


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.

In2010weoperatedanetworkof116officesinthe14countriesthatmadeupKPMG Europe LLP.

Ourofficesprovideuswithaninvaluableinsightintosomeofthemostdynamiclocalandregionaleconomiesinourmarkets,allowingustounderstandingreatdetailthechallengescompaniesface at a local level.

Bybringingtheseresourcestogetherinanintegratedwayweareenhancingtheservicewebringtoourclients,whethertheyarebigglobalcompanies

or the growing national market businesses that form the backbone of our economies.

Itallowsustobringaglobalperspectivetothechallengestheyfaceandtotapawiderpoolofexpertise,drawnfromrightacrossthefirm,tofindthesolutionstheyneedtogrowandprosper.


Erik ClinckHeadofMarkets,Belgium

National markets.

Belgium. ThecrisisledtoasharpdownturnintheBelgianeconomy.Exportshaverecentlypickedupbutfiscalausterityandpricecompetition pressures continue.

Thechallengeistodomorewithlessinallsectors.Governmentdepartmentsandregionalauthorities,inacountrywiththreelanguagesandmultiplelayersofpublicadministration,arelookingtosimplifybureaucracytoprovidebetterservices at lower cost.

Inthepowersector,smartnetworks,smartmetersandtheintegrationofnewsourcesofenergysuchassolar,windandbiomass are all opportunities we are helping clientswith.DemandremainsstrongforBaselIIIandSolvencyIIservices.

KPMGinBelgium–highlights:•TheTaxpracticerecoveredfroma

difficultyearin2009.Advisorywaschallenging,butwecontinuedtoinvestwithimportantexternalhires.

•WehavedevelopedtwocentresofexcellenceinBelgium–onefocusingon the management of assets in the powerandutilitiesbusinessandtheotheron‘processsimplification’inthepublic sector.

•Uniquelyamongstthe‘BigFour’accountancyfirms,KPMGinBelgiumisapatronoftheUK’sInstituteofAssetManagement.WeareworkingwiththeInstitutetoconvertthePASS55assetmanagementstandardintoaninternationalISOstandard. Thiswillallowustoworkwithclientsacrosstheworldinutilities,rail,airportsandinfrastructure.

•IntransportandpublicserviceswewonarangeofadvisoryassignmentstothethreerailcompaniesinBelgium,havingbeenappointedauditortothemainholdingcompanyin2009.*

•WeareworkingwiththeFlemishGovernmenttosimplifyitspublicServicedeliverylookingatareasasdiverseasdisabilitybenefits,marriageregistrationandbusinesssupport.Wehave won further assignments in Greece andGermanybasedonthiswork.

Thecompetitionfortalentremainsfiercesoourpositionasanemployerofchoiceremainsapriority.

*KPMGEuropeLLPlegalgroupincludesonlytheAdvisoryfunctioninBelgium.TheentitiesprovidingTaxandAccountingservicesareassociatesandtheAuditfunctionisnotlegallyconnectedtoKPMGEuropeLLP.However,alltheseentitiesoperateinclose collaboration.

Germany. TheGermaneconomywentintosteepdeclineasrecessiontookholdandexportorderscametoastandstill.Drivenbyareturntogrowthinkeymarkets–particularlyChina–theeconomyhasrecoveredjustasrapidly.

Economists were forecasting growth above3%for2010,butoverallactivityisnotyetbacktolevelsseenin2008. DAX30companieshaveseentheirearningsrecoverhavingusedthecrisistoboosttheirreservesandefficiency.Medium-sizedcompanieshavealsoweatheredthecrisiswell.Family-ownedbusinesseshavesuccessfullyraisedfinancethroughthebondmarketsratherthanresortingtofurtherbanklendingorflotation.

Germany’sstrongindustrialbaseanditsdependenceonexportsmeanscompaniesacrossawiderangeofsectorshavehadto prepare for the shift in economic power to the East. Europe remains the mostimportantexportmarket.ButChinaandotheremergingeconomieslikeBrazilareincreasinglyimportant,particularlywithUSdemanddepressed.

Thereisconcernabouthowlongtheseemerging economies can sustain current growthrates,andwhathappensifacrisis strikes them. Planning investments innewmarkets,decidingwhatresourcestomaintainathome,protectingbrands,trademarksandpatentsareallissuesclientsarethinkingaboutcarefully.


Robert GutscheHeadofMarkets,Germany

Vincent HeymansHeadofMarkets,Luxembourg

•Duringtheyearweworkedcloselywith colleagues across the ELLP firms andwiththeEuropeanFundAssetManagersAssociation(EFAMA)toanalysethetaximplicationsoftheUCITSIVdirective.Weusedthisworkto prepare a paper for the European Commission on how best to implement thenewregulationsandtoprovidedeeperinsightandbetteradvicetoclientsastheyprepareforthechanges.

•Our820peopleworkasamulti-disciplinaryteam.Thishasunderpinnedourperformanceandmadeusagileinmeetingclients’changingneeds.

•AsmostofourclientsareheadquarteredoutsideLuxembourg,the formation of KPMG Europe LLP is presenting us with important new opportunities.Wehavere-organisedthe client services teams for our large international clients so that we can bringmoreofourinsightandexpertisetothemonaglobalbasis.Wearenowextendingthisapproachprogressivelyto our other clients.

Luxembourg. Althoughhighlydependentonthefinancialsector,Luxembourgweatheredthefinancialcrisisbetterthanmanyotherfinancialcentres.Astheworld’ssecondlargestcentreforinvestmentfunds,itactsasaleadingdomicileforglobalfinancialgroupslookingatexportingtheirinvestmentfundsacrosstheEUandglobally.Some80%oftheUCITS(UndertakingsforCollectiveInvestmentsinTransferableSecurities)distributedcross-borderintheEUaredomiciledinLuxembourg.

Regulatorychangewillbeamajorissueforourclientsinthecomingyear.ImplementationoftheEuropeanCommission’sUCITSIVregulationsinJuly2011willleadtosignificantchangeintheinvestmentfundsindustryandwearehelping clients prepare for that upheaval.

KPMGinLuxembourg–highlights:•Overallrevenueswerestable.Audit

turnoverremainedrelativelyflat whileourTaxpracticeincreaseditsrevenuesandnowrepresents30% of our business.

•Advisoryservicesgrewfast.Wearerecruitingheavilyinthisareaandlookingfor20%growthnextyear.ThePerformance&Technologypracticeiswellestablished–onereasonwhywecontinuedtogrowthisyearinspiteofthe financial crisis.

KPMGinGermany–highlights:•Wewonimportantnewworkinthe

Performance&TechnologyareadespiteamixedpictureinAdvisoryservices with less restructuring work thaninthepreviousyearwhenclientswere taking swift action to counteract thedownturn.

•ThereisfurthergrowthpotentialinTaxandAdvisoryservices,particularlyasourclientsreturntotheM&Amarket.

Wecontinuetorecruitstronglyatalllevelsfromgraduatesthroughtomanagersandpartners,toboostourexpertiseinkeyareas,particularlyTaxandPerformance&Technology.

Thecompetitionfortalentedpeopleisintensifying.Toretainourbestpeopleweareworkinghardtocreateacultureinwhichtheycanthrive,andtomatchtheirexpectationsoncareerprogressionandopportunities.


OneofthekeychallengeswastocreateanintegratedteamthatcouldimmediatelywintheconfidenceoftheclientbydemonstratingareallydeepknowledgeofSonyand

the issues it faces.

Client focus: A case study. HelpingSonycutthroughcomplexity.

Sustaining efficiency. SonyCorporationlaunchedaworld-widereviewtosimplify,standardiseandincreasethespeedofitsoperations.

SonyCorporationlaunchedaworld-widereviewtosimplify,standardiseandincreasethespeedofitsoperations.AspartofthisreviewSonyEuropelaunched‘ProjectRISE’,anend-to-endre-evaluationofoperationsincludingprocurement,supplychainmanagementanddistribution,salesandmarketing,financeandaccounting,InformationSystemsandHR.

A20-strongteamfromacrossELLPfirmshelpeddesignanewfinanceoperatingmodeltosupportlocalsalesandmarketingcompaniesacrossEuropeusinganintegratedservicedeliverymodel,comprisinginternalresourcesandathirdpartyoutsourceprovider.

WehelpedSonysimplifyprocesses,reviewedthelikelyreturnoninvestmentoftheproject,whichincluded28efficiencymeasures,andhelpedidentifyandmanagerisks,thisallowedSonyEuropetodeliversignificantefficiencysavingsandboostoperationalperformance.

Theworkwascarriedoutovera16-monthperiodbyateamofexpertsfromourPerformance&TechnologyandTaxteams,withlocalcountrytaxandstatutoryaccountingsupportprovidedbya number of our ELLP firms. one of the keychallengeswastocreateanintegratedteamthatcouldimmediatelywintheconfidenceoftheclientbydemonstratingareallydeepknowledgeofSonyandtheissues it faces.


Jurgen van BreukelenHeadofMarkets,TheNetherlands

National markets. continued.

The Netherlands. TheDutcheconomyisemergingsteadilybutslowlyfromrecession.

Manyfinancialsectorgroups–suchasABNAmro,AEGONandING–eitherBecamestate-ownedorreceivedstateaid.Corporateclients,liketheirpeersacrossEurope,wereheavilyaffectedbythedownturn.

Clients are emerging from recession into anewenvironment.Thepriorityforourfinancialservicesclientsisregulationandgovernance,withgrowingpublicandcustomerdemandforthemtobemoretransparent.Thosebanksfullyorpartlyownedbythestateneedtodevelopstrategiestoregaintheirindependence.

Transformingperformanceisthemajorthemeforourcorporateclients.

Fundamentalreformsofthepublicsector–inareassuchashealthcare–are creating new opportunities for us to help clients.

KPMGintheNetherlands–highlights:•WewereappointedasauditorstoABN

Amro,reinforcingourreputationasleadingprofessionalservicesproviderstothefinancialservicesindustry.

•Asaconditionofwinningstateaid,ING,withourhelp,developedarestructuring plan for the European Commission,involvingseparationofitsbankingandinsurancedivisions.Weareworkingwiththemextensivelytohelpimplementthis,involvingKPMG people in 20 countries across theworld.Wearealsohelpingevaluatethebestoptionsforexitingstate ownership.

•AlandmarkassignmentwastohelpAEGONprepareforthechangesbeingbroughtaboutthenewSolvencyIIregulations.

•InthecorporatesectorwebecameauditorsforMediq.WeundertookacriticalprojecthelpingRefrescodeveloptheirinternalorganisationpriortoanInitialPublicOffering.

•Wearebringingnewexpertiseintothefirmtohelpusaddressourclients’biggestchallenges.WeweredelightedtohireWouterBos,theformerDeputyPrimeMinisterandFinanceMinster,toheadourhealthcareandgovernmentadvisorypractice.

•Astheeconomyrecoversweanticipate growth will return in our AuditpracticeandexpectourAdvisoryservicestoexpandrapidly.WewillbeworkingcloselywithourcolleaguesacrosstheBeneluxcountriestoutilizeourcomplementaryskills.

Russia and CIS. TheCommonwealthofIndependentStates(CIS)fellsteeplyintorecessionin2008.Withhighoilprices,stableexchangerates,andstrongfinancialreserves,marketshaverecoveredquickly.Nowthefocusisoncostreduction,performanceimprovementandbetterriskmanagement.

Reservesofenergyandnaturalresourcesprovideastrongbackbonetotheeconomy,butimportantpartsremainunderdevelopedandripefor investment.

Afurtherchallengeisthemodernisationofindustryandinfrastructure,withGovernmentsdeterminedtodiversifytheireconomiesbyinvestinginhightechnology,agricultureandthefinancial sector.

KPMGinRussiaandCIS–highlights:•TheRussiaandCISfirmhasamarket

leadingpositionwith15officesacrossRussia,Armenia,Georgia,Kazakhstan,KyrgyzstanandtheUkraine.

•DuringtheyearwesupportedUCRUSALbecomethefirstRussiancompanytoachievealistingontheHongKongstockexchange(US$2.2billionIPO).WealsowontheauditofNorilskNickel.


National marketscontinued

Marc van der PlasHeadofMarkets,RussiaandCIS

Celso Garcia GrandaHeadofMarkets,Spain

•Weareexpandingourrangeofservicestoclients,buildingonastrongpositioninAudit.OurTaxpracticeisgrowingstrongly;weexpectdemandforPerformance&Technologyservicestogrow.ThereisstrongdemandforRisk&Complianceservices,particularlyfrombanksandinsurancecompanies.

•Theenergyandminingsectorsremaincentraltotheeconomyasoperatorsexpandabroadandattractinternationalcapitalandexpertisetoexploituntappedreserveslocally. ThisyearweestablishedacentreofexcellenceforenergyandnaturalresourcesinMoscow,reinforcingour team with internal promotions andexternalappointments.

•Wearebuildingourgovernmentteamtoworkwithpublicsectorclientsandstateownedcompanies.

unlocking a market of 250 million consumersintheCISisamajoropportunityforinternationalcompanies,withsignificantpotentialdemandforeverythingfromcarstofoodanddurablegoods.Wearedrivingamajorprojecttoboostforeigndirectinvestment,workingwith12largeRussianregionsandupto60 foreign companies. our report on the majorenablersandbarriersisbeingpublishedattheendof2010.

Spain. Thereweresomesignsofimprovementbytheendoftheyear,buteconomicgrowth is not forecast to return until 2011.Accesstocreditformanycompaniesremainsrestricted,placingacontinuedfocusoncostreduction,cashconservation,efficiencyandrestructuring.Regulatoryreformsmadegovernanceandriskmanagementaboardagendaitem,particularlyinbanking,wheretheawaitedrestructuring of the savings banks began.

Unemploymentremainsapressingissue.Theeconomymustreduceitsoverdependenceonrealestate,soboostingefficiencyandcompetitivenessarekeypriorities.

KPMGinSpain–highlights:•Financialriskmanagementadvice,

part of our risk & Compliance services,andTransactionServices&Restructuringwereallinhighdemand.WewerenamedFinancialAdvisoryfirmoftheyearinSpainbyIntercontinentalFinanceMagazine.Publishedrankingsshowedweweretheleadingfinancialadviserbynumberoftransactionssuccessfullycompleted.

•WebecameaRegisteredAdviserinSpain’snewAlternativeInvestmentMarketandhavealreadyadvisedcompaniesonhowtheycanusethismarket to raise new capital.

•IntensecompetitioncausedpricingpressuresforourAuditpractice,butwecontinuedtowinclientsandprovidednewassuranceservicestothepublicsector.Wewereappointedauditorstotheinternationalsecuritysystemscompany,ProsegurGroup.

•WeinvestedheavilyinonourTaxandPerformance&Technologypracticesandreinforcedoursectorexpertiseinenergy,telecommunications,financialservicesandpublicsector.

•OurTaxpracticegrewstronglysupportedbyincreasedactivityinfinancialservices,M&A,internationalcorporatetaxadvice,transferpricingandindirecttaxadvice.WewerenamedEnergyAdvisoryFirmof theYearinSpainbyCorporateInternationalMagazine.

•WegrewintelecommunicationsandEnergy,wherewewereawardedimportant assignments with Gas NaturalFenosaandIberdrolaandadvisedonseveralkeygasnetworktransactionswithinfrastructurefunds.

•Privateequitybusinessremaineddepressed,buttherearenowsignsofapossiblepickupofactivityin2011.

Ourinvestmentinnewskillsallowedustoprovidetherightsupportforourclientsastheeconomiccyclechanged,andwecontinuethisinvestment.


Hubert AchermannSeniorPartnerand HeadofMarkets,Switzerland

Switzerland. Theeconomyisrecovering,withsectorssuchaspharmaceuticalsandchemicalsperformingstrongly.ThereisgrowingAsianinterestinSwisspremiumbrandsandconsumergoods.Largeindustrialgroupshavebenefittedfromgrowthinemerging markets.

Thefinancialservicessectorhasrecoveredfromthecrisis–althoughtoughregulationsandincreasingclientpressure is forcing the sector to rethink itsbusinessmodels.Theprivatebankingsectorremainsstrongdespiteradicalregulatorychangesandprospectsforthebankingindustryremaingoodbecauseofthequalityandprofessionalismofthe sector.

Corporateclientsarefocusedoncost,back-officeefficiency,supply-chainmanagementandoptimisingperformance.

Mid-marketcompaniesremainthebackboneoftheeconomyandtheirdemandforourservicesisgrowing

KPMGinSwitzerland–highlights:• Auditrevenuesweredown,butour

financialservicesAuditpracticebenefittedfromapickupinthesector,withstrongdemandforhelpwiththeregulatoryandriskcompliancechallenges our clients face.

• Taxgrewstrongly,helpingclientsmaketaxefficientchoicesonoutsourcing,andthroughprovidingtransferpricingandinternationalexecutiveservices.Wehelpedmanynewclientsregularizetheirunclearedassets in Swiss banks as a result of the German government’s campaign againsttaxevasion.

• TheAdvisorypracticeperformedwell–particularlyintheforensicandrealestatesectors.UnderanewleadershipteamwearebuildingourPerformance&Technologyexpertisewherewehavemadestrategicnewhires.

• Ournationalmarketclientsremainapriority.Throughourregionalofficesweofferatrulymultidisciplinaryservicetohelpthisvitalpartoftheeconomythrive,includingadvicetomanyprivateclients who manage the international affairsoflargefamilybusinesses.

• Lookingaheadweexpecttoseegrowingpublicsectordemandwithelectricityliberalizationunderreviewandtheneedsforgovernmentandhealthcareorganisationstofindmoreefficientwaystomanageresources,ashealthcareandpensionssystemscomeunderincreasingpressure.

WealsoanticipategrowingdemandforourservicesfromChinaandotheremerging markets looking to benefit from Switzerland’sattractivebusinessandfinancialenvironmentanditspowerfullinksbetweenbusinessanduniversities.

Turkey. Therecentcrisis,Turkey’ssecondfinancialcrisisinadecade,hittheeconomyhard,butithasreboundedwithgrowthratesfaster than other European economies.

Thegovernmentisimplementingaradicalprogrammeofpoliticalandeconomicreformsasthecountryseeksto meet membership criteria for the European union.

Privatisationsofrail,infrastructure,oil,electricityandgasshouldattractnewforeign investment from some of the world’sbiggestoperators.Thegovernmentisalsoanxioustostrengthenthecountry’smanufacturingbasebyencouragingmoreinvestmenttoimproveproductivityamongalreadyhighlycompetitiveproducersinkeysectors–includingautomotive,components,arms,textilesandleather–toensurethattheycancompetewithrivalsinEasternEurope,ChinaandIndia.

WhilstTurkeyremainsabridgebetweentheWestandAsia,theleadingcompaniesarealsolookingtobuildcapacityinnewoverseasmarkets.Forinstance,theKarsan‘TaxiofTomorrow’wasshortlistedaheadofmanyestablishednamesintheindustrytoreplaceNewYorktaxis,reflectingagrowingdesiretobuildlocallydesignedproductsthatcancompetearoundtheworld.


National marketscontinued

Luis Walter. HeadofMarkets,Turkey

Malcolm EdgeHeadofMarkets,UK

KPMGinTurkey–highlights:• InthefirstyearasanELLPfirm*,we

haveevolvedourbusinesstomeetgrowingdemandforourservices.

•OurAuditpracticefacedintensecompetitionwiththeintroductionofnewregulationsformandatoryrotationofauditors.Neverthelessauditremainsakeystrength,particularlyinfinancialservices with clients such as Vakifbank, Doğuş and Afken.

•WemadeimportantexternalappointmentstoboostourTaxpractice.

•WeareinvestinginexpandingAdvisoryservicestoincreaseourexpertiseIninfrastructureandgovernment,energy,privateequityandtransactions.ThisalignswiththeTurkishStateprivatizationprogrammeandgrowingdemandfromclientsforhelpinadjustingtomarketreforms,boostingefficiencyandreducingcosts.

Overthenextthreeyearsweplantoincreasethefirmsubstantiallyfromthecurrent540people,buttheemphasiswill be on attracting the right talent to bolsterourcapabilities–maintainingthehighestqualityatallcosts.

*TheentitiescurrentlyoperatinginKPMGTurkeyarenotconsolidatedintheELLPgroupfinancialstatementsbutoperationallytheyworkwithothermembercountriestoprovideintegratedclient services.

UK. Withcontinuedeconomicuncertainty,clientshaveconcentratedoncashcontrol,efficiencyandperformance.Banklendingandworkingcapitalremainbigissuesandwehaveworkedwithclientstohelprenegotiate their bank facilities in goodtime.

Retailers,foodmanufacturers,andfinancial services businesses have performedwell.SomeclientshavereturnedtotheM&Amarket,butmanymore are awaiting the right time to make theirmove.Publicsectorclientsandthose private sector companies who are suppliers to the public sector are entering averyturbulenttimeduetothedramaticcutsinpublicspendingproposedbythenew coalition Government.

KPMGintheUK–highlights:• Revenuesfrommedium-sizedclients

wereresilient,withmanyofthemweathering turbulent times better than larger businesses.

•Auditrevenuesremainedrelativelyflat,withpricepressurecompensatedbynewprestigiousclientsincludingPunchTavernsandCapita.

•TherewasgoodgrowthinourTaxpracticehelpingclientssuchasGKNtackletheirpensiondeficits.Therewasgrowingdemandforhelpinmanagingindirecttaxes.

•WhilsttherewasadeclineinAdvisoryworkforpublicsectorclients,overalldemandforAdvisoryservicesgrew,particularlyinTransactions&Restructuring.Wehelpedmanyclientswithdisposals,handlingeightmajortransactionsineightweeks,includingthesaleofCardFactory.WeadvisedBlacksLeisureGroupPLConan innovative restructuring using a CompanyVoluntaryArrangementaspartoftheirturnaroundplan.Thisimprovedtheprofileofthebusinessandenabledittoseek£19millioninfreshequityforfutureinvestment.

•FamilyOfficeworkcontinuestobeanareaofimportantcross-borderactivity,soweranthefirstofour‘FamilyFirst’summer schools to help prepare the nextgenerationofleadersinfamilybusinesses for commercial life

•Ourpeopleremainatthecoreofoursuccess.OurupdatedEmergingLeadersprogrammehasintroducedmore interactions with peers in other organizationstohelpourfutureleadersdevelopawideperspectiveontheissuesfacingbusinessesandenablethemtoprovideevenmorevaluable insights for our clients


Asclientsassesstheirstrategic choices our role istoprovidethemwitha

seriesofroadmapssothattheycankeeptheiroptions

openastheyplanforthe future.


Rachel CampbellHeadofPeople

People.

Talentedpeoplearehighlymobile,sooursearchforthebestpeoplemustincreasinglybeglobal.Byofferinginspiringinternational career opportunities wewillcontinuetorecruitandretainpeopleourclientsreallywant to work with.

Oursuccessinrecentyearshasbeenunderpinnedbyanimportantbutsimpleprinciple:byattractingandretainingtheverybestpeoplewewillwinvaluableandexcitingworkwithhighcalibreinternationalclients.Wehavecontinuedtodevelopourapproachtorecruitment,diversity,careerdevelopment,rewardandremunerationinthebeliefthatbeingthebestfirmforourclientsandthebestfirmforourpeoplegoabsolutelyhandinhand.Thisisparticularlytrueatatimewhenthecompetitionfortalentedpeople is as intense as it has ever been. Itisalsovitalasourownambitiousgrowthplansforthenextthreeyearsenvisageincreasingourheadcountofclient-facing staff within ELLP firms by9,500.

Ourpriorityduringtheyearwas,therefore,towidenoursearchforthebestinternationaltalent,tostrengthenourapproachtorecruitmentandtocontinuedevelopingahighperformanceculturewithinwhichourpeople,atalllevels,canexcelinservingourclients.

Recruitment – a global approach. Thetalentedpeoplewewishtorecruitareincreasinglywillingtomovebetweencountries.Individualshavebecomefarmoremobileandintentuponwideningtheirlevelofprofessionalexperiencebyseekingopportunitiestoworkworldwide.OneofthekeybenefitsofbeingpartofKPMGEuropeLLPisanabilitytoofferreal international career opportunities to peoplefromtheirveryearliestdays.

Duringtheyearmorethan700peopleworkedonsecondmentsinothercountriesorcompletedinternationaltransfersandwearedoingallwecantomake sure more of our people have the rightsupporttoliveandworkin new locations.

Weplantolaunchanumberofprogrammes across the ELLP firms to supportournewjoinerswhoarewillingto be mobile from the start of their career.

Wearefullycommittedtorecruitingtheverybesttalent.Formoreseniorappointments,wearenowsearchingacrosstheworld,particularlyaswebuildkeypartsofthebusinesssuchasPerformance&Technologyandourfinancialservices,energyandnaturalresourcesandhealthcarepractices.

Todevelopoutstandingtalentwithinourbusinesses–andasaresponsetotheFairAccesstotheProfessionsreport–withinourAuditpracticewehavelaunchedanewschoolleavers’programme in the uK.


Creating tomorrow’s leaders.

Ouremergingleadersprogramme–nowinvolvingsome700ofourmosttalentedpeopleacrossELLP–isprovingincreasinglyvaluable.Wearelookingforpeoplewhoarenotafraidtolead,nomatterhowjuniortheyare,andwhoarepassionateaboutthefutureandtheparttheycanplayinourcontinuedsuccess.Weexpectthemtobehighlymobileandtodevelopthesortofagilitythatcomesfromhavinganinternationalmindsetandabreadth,aswellasadepth,ofbusinessskills.

Increasinglyouremergingleadersareworkingcloselywithourclients,suchasBTintheUKandInforma,thepublishinggroup,inSwitzerland,onrealclientissuestogivethemearlyexposuretoveryseniorpeopleandcomplexbusinesschallenges.Wearecommittedto:

• givingthemplacesonourinternationalclientserviceteams

• creatingsecondmentswithclients

• involvingtheminmentoringprogrammeswithpeersinclientbusinesses;and

• encouragingthemtothinklikepartnersanddeveloptheirownnetworkswitheachotherandwithclients.

OurinnovativeBraveBananaonlineideasforum–setupandrunbythoseonouremergingleadersprogramme–givesparticipantsthechancetothrowtheirideasatsomeofthebiggestchallengesourclientsface.ItisnowattractingcontributionsfromacrossELLPfirmsandgrowinginterestfrom clients.

Thisapproachtonurturingtalentispayingdividends. Retentionofthoseonour‘emergingleaders’programmeis running at a rate of 97%.


People. continued.

Forward thinking. Wewanttodevelopforward-thinkingpeoplewithaglobalmindsetandanenergyandpassionforhelpingclientsovercomethechallengestheyface–someoftheattributesourclientssaytheyseeinKPMGwhenweareatour best.

AcrossELLPfirmswehaveestablishedacommonframeworkfordevelopingourpartnersandhavelaunchedaseriesofnewprogrammesincludingthePartnerEssentialsandtheBoardroommaster-class programme.

Forourstafftoo,wearerollingoutacommondevelopmentagenda.ThecurriculumisGlobalandbrandedtheKPMGBusinessSchool.ThenewvirtualschoolhaslaunchedinAsiaPacificandlaunchesinEuropeinearly2011.

Meeting expectations. Wehavehighexpectationsofourpeopleandtheyarerighttodemandgreatthingsofustoo.Theyexpectcompetitiverewards,theopportunitytoreachtheirfullpotential,theabilitytoprogressintheircareersandtoworkinarespectfulenvironmentthatreflectstherichdiversityoftheworldaroundthem.

Wehavealwayspaidmarket-leadingrewardsformarket-leadingperformance.Wecontinuetorewardpeopleforexceptionalachievementthroughourperformancerelatedpaysystem.Assessingindividualperformanceinanopenandhonestwayremainsakeyfeatureofthehighperformance‘winning’culturewearecreating.Wecontinuetohave one of the most generous performancerelatedbonuspools.

Butpayisnotalwaysthemostimportantaspectofrewardandtheexpectationsofsomeofouryoungerprofessionalsarechangingfast.Flexibleworkingarrangements,recognition,thechancetogainexperienceoutsideKPMGonsecondment,clearcareerpathsandthechancetoworkinternationallyareallamongtheissuestheyseeasimportant.Weactivelypromoteallthesepractices.

AcrossKPMGwearedeterminedtohelpmoreofourmosttalentedwomenprogress to partner level through active mentoring,supportedbydevelopmentprogrammes,supportnetworks,familysupportandexplicittargeting.Diversitynetworks–includingKNOW,ourwomen’snetworkinGermany,SwitzerlandandtheUK,theIslamicSocietyintheUKandPride@KPMG,ourlesbian,gayandbi-sexualgroupintheNetherlands–continuetothrive.TheyprovidearealforumfordevelopingbeneficialrelationshipsbothinsideKPMGandwithclients.

Finally,actionondisabilityisalsoapriority,acrossKPMGEuropeLLP.TheUK,CISandSpaininparticularareallfocusedonensuringwecreateaworkplacethatisattractivetotalentedpeoplewithdisabilities–andofcoursetoourdisabledclientstoo.


Wewanttodevelop forward-thinkingpeople withaglobalmindset andanenergyand

passion for helping clients overcome

the challenges theyface.


Corporate Social Responsibility.

€15.3 million

communityinvestment

6,583volunteers

58,526voluntaryhours

WewantourCorporateSocialResponsibilityprogrammetohavearealandlastingimpact.Increasinglythatmeansputtingourskillstoworkinsmarterandmoresustainableways.

CorporateSocialResponsibility(CSR)isintegraltoourvaluesanddefinesthewaywegoaboutourbusiness.Itisimportantnotonlyasaresponsibilitytothecommunitiesinwhichweoperate,butisincreasinglyvitaltothelong-termcommercial success of KPMG Europe LLP.

Ourpeople,uponwhomwedepend,havehighexpectationsofusandwanttoworkforasociallyresponsibleorganisation.Furthermore,ourclientsandsuppliers,aswellasthecommunitygroupswewanttoworkwith,demandevidencethatwenotonlysaytherightthingsaboutCSR,butalsopracticewhatwepreach.

Inthelastthreeyearswehavebuiltastrong CSr programme across ELLP firms,concentratingonthreekeyareas–voluntarywork,charitabledonationsandprotectingtheenvironment.Wehaveexcitingprogrammesrunningineachofthe 16 countries within which ELLP firms operate,andwearemakingsurethatourpeoplecangetinvolvedwherevertheyliveandwork.

Wenowwanttobuildonthesestrongfoundationsandplayaleadroleinhelpingbusinessandsocietyovercomethehugesustainabilitychallengesofthefuture.WecanachievetheaimsofourCSRprogrammemosteffectivelywhenwe mobilise our business skills in innovativeways.Forthisreasonweare:

• lookingformorepro-bonoopportunities where we can contribute ourownskills,forinstanceworkingtogetherwithourcommunitypartnersto help them achieve their core objectives;and

• workingmorecloselythaneverwithclientsandsupplierstoreducetheimpact which our collective businesses have on the environment.

Wearecommittedtoproducingasustainabilityreportacrossthecountries

Weareoneofonly10internationalbusinessestobeawardedBusinessintheCommunity’sprestigiousPlatinumPlusaward.Thismeasuresourprogressinaddressingsustainabilityissuesandourleadingknowledgeandunderstandingofthe challenges we face.

within which ELLP firms operate within thenextyear.Preparatoryworkhasstartedonthisreport(underastakeholderengagementprogramme)andwehavecommencedareviewofthepotentialindicatorsthatarerelevanttoournational businesses.

Bright. OurnewlylaunchedBrightprogrammeisacaseinpoint.Itencouragesourpeopletocomeupwithgreatideastouse their skills to help us work better withourcommunitypartnerstotacklelocalchallengesandworkwithourinternationalpartnersindevelopingcountries to support the Millennium Development Goals.

Wehavesetchallengesforourpeoplewhichreflecttheneedsinourlocalcommunities. Participants who come up withthebrightestideasaresupportedbyustoimplementtheirwinningideaandget the chance to work with our internationalcommunitypartners.Forexample,somearesupportingFairtradeAfricabyprovidingbusinesstrainingtoproducersinKenyaandTanzania.Indeed,wearebuildingonthisimportantrelationshipwithFairtradeproducersinallsortsofwayswhichinvolvesworkingwith growers in the villages through to usingFairtradeproductsinourcanteensandclientdiningrooms.

Our skills in the community. Ourcommunityprogrammescontinuetocentreonfourmainareas–education,employability,enterpriseandtheenvironment–andthesearethefocusforbothourvolunteeringeffortsandcashdonations.Duringtheyearourcashandin-kinddonationstotalledarecord€15.3million.

Morethan6,000peopleacrossELLPfirmscontributedsome59,000hoursoftime,whichisanotherrecordinvestmentandreflectedasharpincreaseinpro-bonoactivity.


Reducing our impact•16.8%reductioninairandcartravel•Electricity,heatingandcooling3.7%reduction•CO2emissionsin2007were3.39tonnesperFTE,theyarenow2.15tonnesperhead

• WeareveryproudthatourpeopleinKPMGUKhavenowraisedmorethan£1millionforourpeoplecharity,theAlzheimer’sSociety,beatingour£800,000,two-yeartarget.TheBigBlueBikeRide(linkingalltheUKoffices)aloneraised£170,000.KPMGUKstaffhavealsocompletedsixpro-bonoprojectsand500partnersandstaffhaveworkeddirectlywiththecharity.DonationsbyKPMGGermanystafftotheirchosencharity,DeutscheKinde-und-Jugendstiftung,reached€137,218.

• KPMGTurkeyissupportinguniversitystudentsfromthedeprivedsouth-easternregionofthecountry,tohelpencouragemuchneedednewskillsandinternationalinvestment.

• KPMGfirmsinSpainandtheNetherlandsareconcentratingonyoungpeopleindangerofbeingsociallyexcluded,workingwithNorteJovenandtheExitFoundationinSpainandCoach2BintheNetherlands.

• KPMGCISissupportingathree-yearEarlyInterventionprojectintheNizhny-Novgorodregiontoimprovecareservicesforyoungchildrenwithspecialneeds,whichinvolvesworkingcloselywiththelocalhealthandsocialsecurityministries.

• Bytheendofthisyearmorethan150 social market places will have takenplacealloverGermany.KPMGGermanyhassupportedmorethan40eventsthroughorganisationalsupport,giftsinkind,pro-bonoexpertiseandpromotion.Asaresultofitsworksince2006indevelopingsocialmarketplacesinGermany,theGermanfirmalongwiththeBertelsmannFoundationandRWE,waspresentedwiththefederalinitiative‘Germany–LandofIdeas’award.

• KPMGSwitzerlandis,bywayofthe‘OurInspirationalGrant’,supportingscientific breakthroughs with an emphasis on entrepreneurial schemes thathaveacommunityorenvironmentalfocus.Workingwithtwokeytechnology

setslocalpriorities.InSwitzerlandandLuxembourg,forinstance,ELLPfirmsare promoting car-sharing schemes whileinKPMGGermany,wherewewere among the first to achieve carbon-neutraltraintravel,theonusisonpromoting better use of public transport.

Wecontinuetoworkcloselywithsupplierstomakesuretheymeetourstrictethicalandenvironmentalstandards.Allnewcontractsover€50,000arenowsubjecttoourSuppliers’CodeofConduct,whichisbasedontheUNGlobalCompact.TheELLPfirmstogetherpurchasesome€700millionofgoodsandservicesontermsandconditionswhichalsoincludeoursuppliers’CodeofConduct.

Ready for the future. Thedebateischangingfastandwearedeterminedtobeconsideredleadersinaddressingthechallengesthatwillariseinthefutureinthisarea.Theimplicationsof the international climate change talks inMexicoinDecember2010maywellhighlightthecomplexityofthetaskfacinggovernments,businessesandcommunitiesinbuildingamoresustainable future.

Theneedforactionandnewthinkingis paramount. For that reason our commitmenttobuildinganincreasinglystrongCSRprogrammeandtousingourskillsinmoreinnovativewaysmust,andwill,remainunchanged.

Read about sustainability and climate change on page 46.

institutestoassesstheprojects,ithasnowdonatedatotalofCHF400,000ingrantfunding.

• OnMakeaDifferenceDay,150volunteersfromKPMGBelgiumworkedwith 12 non-profit organisations. KPMG LuxembourghelpedADA,anon-governmentalorganisation,assessmicro-financeprojectsinAfrica,AsiaandLatinAmerica.

• KPMGUKisbuildingincreasinglystrongtieswiththenewCityAcademyinHackney,LondonopenedinSeptember2009andsupportedby£1millionoffundingfromeachofKPMGandtheCityofLondon.Itisprovidingleadershipandgovernancesupport,helpingtorunanambitioussocialenterpriseprojectandourpeopleareactingaspersonaladviserstostudentsoftheCityAcademy.

Greener ways of working. Wecontinuetomakesteadyprogressinmeetingourenvironmentaltargetsandour global green ambition is helping us to manageourresourcesmoreefficiently.

OurambitionwastoreduceourCO2 emissionsby25%in2010usinga2007baseline.Wearedelightedthatweactuallywentmuchfurther,achievinga36.5%netreductionacrossalloftheELLP firms.

CelebratingWorldEnvironmentDayinJune2010weencouragedpeopleacrossthefirmtomakeindividualpledgestoreducetheirpersonalcarbonemissions,providingthemwithclearinformationonthecontributiontheyweremaking.

Whileglobaltargetshelp,manyenvironmentalissueswefacedifferfromplacetoplaceandeachoftheELLPfirms


Client focus: Q&A with Yvo de Boer. Forecastingthechallengesandopportunities.

Sustainabilityandclimate change.

Q: Why did you join KPMG from the UN at this time?A:BecauseIthinktheinternationalprocesses on climate change have enteredanewera.Peoplecanargueabout whether Copenhagen was a success or a failure. But the conference hasdramaticallychangedtheinternationallandscape.Thecomplexchallengenowisimplementation.Weareconfrontedwith government policies that are relativelyunclear,inmanyinstances,butwideranginginscope.

Q: Are you convinced business can be an agent for change in this whole process?A:Yes–ifonlybecausebusinessesrecognisethattheenvironmentaroundthemischanging,intheecological,socialandeconomicsense.Businessesarelookingatrisksandopportunitiesinamorecomprehensiveway.Andthatiswhere KPMG firms have an important roletoplay.Wecanhelpbusinessesunderstandthechangingenvironmentanditsimpactonthem.

Havingsteered193countriesthrough the climate change negotiationsinCopenhagen,YvodeBoerhaslefthisroleasExecutiveSecretaryoftheUN’sFrameworkConventiononClimateChangeandnowleadsourworkonsustainability.Herehediscussesthechallengesthat lieahead,arguingthatbusinesscanandshouldbeanimportantagent for change.


Q: Has the financial crisis pushed sustainability down the political and corporate agenda?A:Idividethesustainabilitychallengeintotwocategories–issuesaroundtoday’sbottomlineandthosearoundtomorrow’s bottom line.

Ontoday’sbottomlinetherearehugeopportunities for businesses to save energyandtousematerialsmoreprudently,whichisultimatelyanopportunityforcostoptimisation.Ontomorrow’sbottomlinethat’swhereyouneedtounderstandhowclimatepolicies,energypricesandconsumerdemandaregoingtochangeovertimeandhowyouneedtorepositionyourservices.That’swherebusinessesneedsupport.

Q: How well are KPMG firms doing in helping clients with this challenge? A:SustainabilityandclimatechangeisnotnewtoKPMG–we’vebeenworkingondifferentaspectsofthistopicforalongtime.Thechallengenowistolinkthoseareasofexpertiseandtoputourhugeexperienceinaudit,taxandadvisoryinthecontextofthenewchallenges we face.

Q: What do we need from politicians?A:Aninternationalarchitecturetohelpcountriesandcompaniesmakeprogress.Manybusinessesarecallingforsomethingthatislong,loudandlegal.Bylongtheymeanalong-termpolicyperspective.Byloudtheymeansomethingthatexpressesaclearandstrongambitionandbylegaltheymeananinternationalcontextthathascredibilityandwillbeabidedby.Thatisan important signal to governments.

Q: Are developing economies better placed to make progress? A:Theiroverridingconcerniseconomicgrowthandpovertyeradicationandtheyunderstandthatsimplyfollowingtheexampleofindustrialisedcountriesmaynotbetheidealwaytogo.Itisphysicallyimpossible to continue growing China by8%or9%ayearusingthecurrentenergyandindustrymodel.

Toputitanotherway,I’mnotsoconcernedaboutthe1.5billionpeoplelikeyouandmewhohaveaprettydecentlifestylewhichperhapsneedstobealittlemoresustainable.Whatconcerns me more is the 5.5 billion people currentlylivingonlessthan$10adaywhoarekeentohaveabetterlifestyle,preferablyclosertoyoursormine.Withincurrentconstraintsthatisphysicallyimpossibletoachieve,soweneedtostart focusing on green growth.


*InApril2010,theHeadofAdvisoryretiredfromtheBoard.From1October2010,theHeadofAdvisoryboardpositionwassplitintothreenewpositionsbeing:HeadofPerformance&Technology,HeadofTransactions&RestructuringandHeadofRisk& Compliance.


Corporate governance.

Wearetotallycommittedtoensuring that we continue to operateattheforefrontofgoodgovernance.Inthatrespect,KPMGEuropeLLPhasfullyadoptedtheUKICAEWAuditFirmGovernanceCodeacrossthe ELLP group even though thisisonlystrictlyobligatoryfor uK firms.

Ourgroupapplieshighstandardsofcorporate governance which mirrors thosestandardsadoptedbyourmajorclients.Ourpracticesareadaptedslightlytoreflectthefactthatthefirmiswhollyownedbyitsmemberswhoworkwithinthe organisation.

OurgovernancestructureislaiddowninbothourLimitedLiabilityPartnershipAgreementandtheKPMGEuropeLLPGovernanceProvisions.Thefollowing sections summarise the roles andresponsibilitiesoftheofficersandgovernancecommitteesasdefinedbytheseprovisions.Furtherdetailsofthegovernance arrangements operating within KPMG Europe LLP are set out in the2010KPMGEuropeLLPTransparencyreport available online at www.kpmg.eu/annualreport.

The Joint Chairmen. KPMGEuropeLLPisledbyitsJointChairmen,RolfNonnenmacherandJohnGriffith-Jones.TheJointChairmenareappointedbytheBoardbuttheappointmentmustberatifiedbyanordinaryresolutionofthepartnership.Theyhavebothservedthreeyearsoftheirinitialtermofofficeoffiveyears.TheJointChairmenareresponsibleforleadingthegroup.OneoftheJointChairmencurrentlychairstheBoardandtheotherchairstheExecutiveCommittee.

UnderneaththeJointChairmenaresixmainbodiesthatdealwithkeyaspectsof governance within the group.

Theseare:

• theBoard

•theExecutiveCommittee

•theAuditCommittee

•theQuality&RiskCommittee(formerlytheRisk&ComplianceCommittee)

• theNominationsCommittee

• theRemunerationCommittee;and

•inadditionfrom1October2010wehaveformedanewPublicInterestCommittee.

The Board. TheBoardofKPMGEuropeLLP(‘theBoard’)isresponsibleforensuringthatthe group is run in the interests of the membersasawholeandinamannerwhichisinkeepingwiththestandingandreputationofthefirm.TheBoard’sresponsibilitiesincludesettingthegroup’sstrategy,overseeingitsimplementation,consideringoverallfinancialperformanceandsolvency,ensuringthemaintenanceofasoundapproachtoriskmanagementandinternalcontrolandreviewingtheeffectivenessofsuchapolicy.DetailsoftheBoardmembers,includingtheirbackground,thetermofofficethattheyhaveservedontheBoardandtheothergovernancecommitteesonwhichtheyserveareintheELLPTransparencyReport.

Duringtheyear,theBoardcomprisedthetwoJointChairmen,eightadditionalofficers(beingtheChiefOperatingOfficer,andtheHeadsofAudit,Tax,Advisory*,Markets,Finance&Infrastructure,PeopleandQuality&Risk),andanumberofKPMGpartnerswhoheldnon-executiverolesforthegroup.Asat30September2010,therewereatotalof26partnersontheELLPBoard.TheofficerrolesareappointedbytheBoardfollowingtherecommendationsoftheJointChairmenandareelectedforatermofthreeyears,renewableforsuchaperiodastheBoardseesfit.Thenon-executivemembersarerecommendedforappointmentbytheNominationsCommittee in consultation with the Joint Chairmenandarealsoelectedforatermofthreeyearsand,ifrequired,canservefortwoterms(orinthecaseofthenon-executivememberbeingaseniorpartnerofoneofouroperatingfirmstheymaybeappointedfortheperiodthattheyholdthatoffice).

TheBoardmetninetimesintheyearto30 September 2010.


our group applies highstandardsofcorporate governance which mirrors those standardsadoptedbyourmajorclients.

The Executive Committee. TheExecutiveCommitteeisresponsibleformanagingthedaytodayoperationsofthegroup.ItsresponsibilitiesincluderecommendingpolicytotheBoard,developingandimplementingtheBusinessPlanbasedontheBoard’sstrategicprioritiesandmonitoringoperatingandfinancialperformance.During 2010 it met 14 times either face- to-faceorviavideoconference.

The Audit Committee. TheAuditCommitteeisresponsibleformonitoringtheintegrityofthefinancialstatementsofthegroup(includingassessinganysignificantfinancialreportingjudgmentscontainedtherein),reviewinginternalfinancialandoperationalcontrols,overseeingtheinternalauditfunctionandmonitoringtherelationshipwiththeexternalauditors.TheAuditCommitteecomprisedthreenon-executiveBoardmembersandmetformallythreetimesintheyearto30September2010.

The Quality & Risk Committee. TheQuality&RiskCommitteeisresponsible for ensuring that a culture ofqualityandintegrityismaintainedwithinthegroupandwhererequiredtoactasasoundingboardtotheHeadofQuality&Riskonthepoliciesandproceduresrelatingtoprofessionalriskmanagement,ethicsandindependence,qualitycontrolandcompliance.

TheQuality&RiskCommitteecomprisedfournon-executiveBoardmembersandmetsixtimesintheyearto 30 September 2010.

The Nominations Committee. TheNominationsCommitteeisresponsibleforidentifyingsuitablecandidateswithinthegroupforappointmenttotheBoard,andotherkeyappointmentswithinthegroup.ItreportstotheBoardortheJointChairmen,asappropriate.TheNominationsCommitteemetfourtimesintheyear.Asat30September2010therewerefivemembersontheCommittee,beingtwonon-executiveBoardmembersandthreenon-Boardmembers.

The Remuneration Committee. TheRemunerationCommitteeisresponsibleformakingrecommendationsonpoliciesforpartners’remuneration,approvingtheprocessusedbytheExecutiveCommitteefordeterminingindividualpartnerremunerationanddeterminestheremunerationoftheJointChairmenandthemembersoftheExecutiveCommittee.KPMGEuropeLLP’s policies for partner remuneration take into account a number of factors includingqualityofwork,excellenceinclientservice,growthinrevenueandprofitability,leadershipandlivingthevalues of the firm.

TheRemunerationCommitteemetfivetimesduringtheyear.

The Public Interest Committee. AsrequiredbytheAuditFirmGovernanceCodewehaveappointedthreeexternalnon-executives(SirSteveRobson,TomdeSwaanandDr.AlfredTacke)whotogetherwith effect from 1 october 2010 have formedanewPublicInterestCommitteeforourgroup.TheCommitteeisresponsible for overseeing the public interestaspectsofourdecisionmakingincludingthemanagementofreputationalrisks.Actinginthepublicinterestinthiscontextmeanshavingregardtothelegitimateinterestsofclients,

governments,financialinstitutions,employees,investorsandthewiderbusinessandfinancialcommunityandothersrelyingontheobjectivityandtheintegrityoftheaccountingprofessiontosupporttheproprietyandorderlyfunctioningofcommerce.ThePublicInterestCommitteeisalsoresponsibleforengaginginadialoguewithourexternalstakeholders.

National firms. Thevariousfirmsthatcompriseourgroup have governance structures appropriate to meet their national laws andregulations.AlloftheELLPfirmsproducetransparencyreports(eventhosethatarenotrequiredtodosobylaworregulation).Accordingly,furtherdetailsofthegovernancestructureoftheELLPfirmscanbefoundintherelevantnationaltransparencyreports.


Corporate governance continued

Risk Management. TheBoardhastheultimateresponsibilityforensuringthatanappropriatesystemofriskmanagementandinternalcontroloperates throughout our group that coversallthekeyenterpriserisksthatwecollectivelyface.

TheenterpriserisksthattheBoardseeks to manage fall into the following maincategories:

• financialrisk

• operationalrisk;and

• professionalrisk.

Responsibilityformanagingtheserisksforourgroupisasfollows:

Financial risk–TheChiefFinancialOfficer(reportingintoHeadofFinance&Infrastructure).

Operational risk–TheChiefOperatingofficer.

Professional risk–theHeadofQuality& risk.

Ariskregister,capturingkeyrisksinallcategoriesofenterpriserisk,ismaintainedtohelpensurethatthosewithresponsibilityforcorporategovernancehaveafullunderstandingofallofthekeyrisksfacingourgroup.Thisregisterisreviewedannually(initiallybytheExecutiveCommitteeandthenata

jointmeetingoftheQuality&RiskandAuditCommittees)toensurethatallkeyrisksthathavebeenrecordedhaveappropriate mitigating controls in place. TheoutputofthisworkisultimatelypresentedtotheBoard.OurstrategyisunderthedirectcontroloftheBoard,whichconsidersandreviewstheappropriatenessofKPMG’sstrategy(takingintoaccountthecurrentriskregister)bothonanongoingbasisandformallyannually.

Ourgroupoperatessystemsdesignedto manage rather than eliminate the risk offailuretoachievebusinessobjectiveswhichcouldotherwisebeaffectedbyanyoftheserisks.Assuch,thesesystemscanonlyprovidereasonable


assurance against material misstatement orloss.TheBoard(eitherdirectlyitselforthroughoneofitssub-committees)hasreviewedtheeffectivenessofthesystemofinternalcontrolsinoperationduringtheyearandissatisfiedwithits effectiveness.

How we deliver engagement quality. Oursystemofqualitycontrolsisdesignedtomeettheexpectationsofourclientsaswellastherulesandstandardsissuedbynationalregulatorsandprofessionalinstitutions(includingthoserequiredbytheInternationalFederationofAccountants(IFAC);thePublicCompanyAccountingOversightBoard(PCAOB)andtheInternationalStandardofQualityControlNo1(ISQC1)andanynationalregulators).

Thesystemofqualitycontrolsapplicableacross our group for all of our services encompassesthefollowingkeyelements:

• leadershipresponsibilityforquality

• highethicalstandards

• strongpeoplemanagement

• rigorousproceduresforacceptanceandcontinuanceofclientrelationshipsandengagements

• processeswhichdelivereffectiveengagementperformance;and

• monitoringactivities.

1.Leadershipresponsibilityforquality. Werecognisetheimportanceofdeliveringqualityservicesandarecommittedtodoingso.TheBoardisresponsibleforsettingstrategyandhasultimateresponsibilityforoursystemofqualitycontrol(whichisruninaccordancewiththeprinciplesinISQC1).TheBoardhasdeterminedthatacommitmenttoqualityisthemostimportantofitspriorities.Werecognisethatifwedonotgetthequalityofourserviceanddeliverablesright,theneachandeveryoneoftheotherobjectivesinourbusinessplanmaybejeopardised.

2.Highethicalstandards. Oursharedvalueshelpshapethecultureofourgroup.Ouroverridingvalueisthat‘aboveallweactwithintegrity’.Forusintegritymeansconstantlystrivingtoupholdthehighestprofessionalstandardsinourwork,providinggoodqualityadvicetoourclientsandrigorouslymaintainingourindependence.OurcommitmenttoprofessionalismandintegrityisalsoenshrinedintheKPMGCodeofConduct(theCode).OurCodesetsoutKPMG’sethicalprinciples.Itemphasisesthateachpartnerandemployeeispersonallyresponsibleforfollowingthelegal,professional,andethicalstandardsthatapplytohisorherjobfunctionandlevelofresponsibility.TheCodeisunderpinnedbythecorevalueofintegrity.

Toensureourindependenceandobjectivityinrespectofanyclientengagement,ourfirmsandtheirpartnersandstaffmustbefreefromanyprohibitedfinancial interest in respect of our clients’ businessandfreefromanyprohibitedrelationshipwithourclients.Inordertoachievethisindependence,allfirmscomplywiththeindependencestandardssetbyIFACandtheSEC(whererelevant)aswellasanyrelevantlocalstandards.WehaveappointedadedicatedEthicsandIndependencePartnertohelpensurethatweapplyconsistentandrigorousindependencepolicy,processesandtools across our group.

3. Strong people management. Oneofthekeydriversofqualityisensuringthatyouhavetherightpartnersandstaffmembersassignedtoanengagement.Tohelpensurethatwerecruitandretaintherightpeople,weadoptbestpracticehumanresourcespoliciesandprocedurescoveringmatterssuchasrecruitment,performanceevaluation,professionaldevelopment,compensationandpartneradmission.Inassigningpeopletospecificengagements we evaluate a range offactorsincludingtheirskillset,professionalandindustryexperienceandthenatureoftheengagement.

4.Rigorousproceduresforacceptanceandcontinuanceofclientrelationshipsandengagements. Rigorousclientandengagementacceptanceandcontinuanceproceduresareimportanttotheabilityofourfirmstoprovidequalityprofessionalservices.OurproceduresincludeperformingannualevaluationsoftherisksassociatedwithworkingforaparticularclientincludingspecificevaluationstodeterminewhetherornotKPMGiswillingandabletoprovidea specific service to a client. For higher riskclientsandengagements,approvalisrequiredfromlocalQuality&risk professionals.

5.Processeswhichdelivereffectiveengagement performance. Ourfirmshavedevelopedstandardisedtoolsandmethodologiesformanyofourservices.Theseincludefunctionalmanuals,workprogrammesandITtoolsandhavebeenimplementedtohelpensurethatourpeopledelivertheirservicestotherequiredstandard.

6. Monitoring activities. Policiesandproceduresaremonitoredregularlytoensurecontinuingrelevanceandeffectiveness.Inaddition,independentreviews(includingreviewsofspecificengagements)areperformedeachyeartoassesstheeffectivenessofandcompliancewiththerequiredriskmanagementandqualitycontrolpoliciesandprocedures.

Furtherdetailsonourqualitycontrolproceduresaresetoutinthe2010ELLPTransparencyReportavailableonlineatwww.kpmg.eu/annualreport.


13 14 15 16

05 06 07 08

09 10 11 12

01 02 03 04

Board members.

01. John Griffith-Jones JointChairmanandUKSeniorPartner Homecity:London

02. Prof Dr. Rolf Nonnenmacher JointChairmanandGermanSeniorPartner Homecity:FrankfurtamMain

03. Richard Bennison Chief operating officer Homecity:London

04. Hubert Achermann SwissSeniorPartner,Chairman ofRemunerationCommitteeand non-executiveBoardmember Homecity:Zurich

05. Jeremy Anderson HeadofMarkets Homecity:London

06. Mike Ashley HeadofQuality&Risk Homecity:London

07. Guy Bainbridge ChairmanofAuditCommittee andnon-executiveBoardmember Homecity:London

08. Aidan Brennan4 HeadofPerformance&Technology Homecity:London

09. Jurgen van Breukelen2 Non-executiveBoardmember Homecity:Amsterdam

10. Rachel Campbell HeadofPeople Homecity:London

11. Simon Collins4 HeadofTransactions&Restructuring Homecity:London

12. Andrew Cranston3 RussiaandCISSeniorPartnerand non-executiveBoardmember Homecity:Moscow

13. Herman Dijkhuizen2 DutchSeniorPartnerand non-executiveBoardmember Homecity:Amsterdam

14. Malcolm Edge Non-executiveBoardmember Homecity:Manchester

15. Jaap van Everdingen2,5 HeadofFinance&Infrastructure Homecity:Amsterdam


21 22 23

25 26

17 18 19

24

20

16. Michael Gewehr Non-executiveBoardmember Homecity:Düsseldorf

17. Ernst Gröbl4 HeadofTax Homecity:Munich

18. Harald von Heynitz ChairmanofNominationsCommittee andnon-executiveBoardmember Homecity:Munich

19. Johannes Pastor Non-executiveBoardmember Homecity:Munich

20. Karin Riehl3 LuxembourgSeniorPartnerand non-executiveBoardmember Homecity:Luxembourg

21. Jack van Rooijen2 Non-executiveBoardmember Homecity:Utrecht

22. Carsten Schiewe4 HeadofRisk&Compliance Homecity:Hamburg

23. Joachim Schindler HeadofAudit Homecity:Berlin

24. John M. Scott SpanishSeniorPartnerand non-executiveBoardmember Homecity:Madrid

25. Patrick Simons1 BelgianSeniorPartnerand non-executiveBoardmember Homecity:Brussels

26. Stefan Zwicker Non-executiveBoardmember Homecity:Zurich

1 Appointed1April2010. 2 Appointed1November2009.

3 Appointed1October2009.

4 Appointed1October2010. 5 AppointedasHeadofFinance&Infrastructure

1 october 2010

Changes to the Board:

–BerndSchmidwasamemberoftheBoarduntilhisretirementon31January2010

–LucWygaertswasamemberoftheBoarduntilhisretirement on 31 March 2010

–Dr.BerndErle,AlistairJohnstonandDieterWidmerweremembersoftheBoarduntiltheirretirementson30September,27Septemberand30April2010respectively

–SueBonney,Hans-JürgenFeyerabendand Dr.AshleySteelsteppeddownasBoard membersattheendoftheirelectedterm on 30 September 2010

54 | KPMG Europe LLP | Annual Report 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:

• IntheUK:registerednumberOC324045, registered address 15 Canada Square, Canary Wharf, London, E14 5GL.

• InGermany(inthecommercialregisterat 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:

• KPMGmemberfirmsprovidingaudit,taxandadvisoryservicesintheUK,Germany, Switzerland, Spain, Luxembourg and the Commonwealth of Independent States (CIS, comprising entities in Russia, Ukraine, Armenia, Kazakhstan, Kyrgyzstan and Georgia);

• TheKPMGmemberfirmintheNetherlandsprovidingauditandadvisoryservices;and

• CertainentitiesoftheKPMGmemberfirms 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 thegroup.However,forcontractualandregulatory reasons, this is not currently possible in certain countries and the audit firm in Belgium and the Turkish firm’s 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 outinnote27.Detailsonthegovernanceof the group are set out in the Corporate governancesectiononpages48to51,which also discusses the group’s 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. Thegroupoffersauditandtaxservicesandadvisoryservices,organisedthrough the functions of Transactions & Restructuring, Risk & Compliance and Performance & Technology, across Europe.

Strategy. The Chief Operating Officer discusses the group’s strategy on pages 6 to 9.

Financial performance. Assetoutabove,thegroup’sresultscoverthe 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 groupforonlyvariouspartsoftheyear.

Grouprevenuewasboostedbythecompletion 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 Luxembourghadanimpactonrevenue.Hence,thegroup’sreportedrevenueof€4,065 million was up 16% compared to the prior year, although on a pro-forma basiswhichtreatsallcountriesashavingbeen in the group throughout both years, revenuesfellby3%.

On this proforma basis (which also ignores theimpactofexchangeratemovements),revenuesintheAuditfunctionhelduprelativelywellinchallengingmarketconditions, declining by 7%. Demand for taxservicesbegantorecoverparticularlyin the UK as merger and acquisition and pensionactivityincreased,althoughtheseimprovementswerelessapparentinothercountries;Taxrevenuesfellby2%.OurAdvisoryfunctionmaturedintothreeseparate functions, better reflecting the skillsandservicesdemandedbyclients.We now report these three functions providingadvisoryservices–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,decliningby4%onaproformabasis.However,theRestructuringbusinessintheUKhasbeenverybusy,whichhasmitigated the decline. The growth in Performance & Technology, up 17% on a proformabasis,hasbeendrivenlargelyondemandfromthefinancialservicessector.Risk&Compliancehasachievedamixedperformance across the group, declining by 8%overall;whilstmostregionshaveseenadecline,theUKhasachievedgoodgrowthlargelydrivenbytheperformanceof 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 localemploymentandservicecontractsbut before all profit shares payable to UK partners. The operating profit of €513 million is, as a consequence, almost entirely denominated in pounds sterling andtheincreasecomparedtothepreviousyear’s €444 million is attributable to the continuedprovisionofservicesvaluedbyclients whilst keeping costs under tight control in the UK.

KPMG Europe LLP | Annual Report 2010 | 55Annual Report 2010 | 55 Report 2010 | 55

Report to the members continued

Averagefull-timeequivalentheadcountofthe group on a pro-forma basis for the year was28,190.Thiswasafallof4%,arisingin most of the group’s operating segments as the firm managed its resources in responsetoweakdemandforservices.Performance & Technology was the exception, with headcount increasing as aresultofinvestmentinitiatives.

Net assets and liquidity. The group’s statement of financial position at 30 September 2010 includes the assets and liabilities of the group’s 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’capitalandotherreserves,which together totalled €676 million at 30 September 2010. Bank facilities of €515millionarealsoavailabletothegroup,againstwhich€181millionhadbeen drawn at 30 September 2010.

Capitalisprovidedbyeachmemberonbecoming 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 thereforerelativelystablefromyeartoyear.

The group’s main assets attributed to theclientservicesegmentsaretradereceivablesandunbilledamountsforclient work. Both categories are monitored monthly at departmental and function levels.Thepromptrenderingoffeesforwork done, and collection of the resulting receivables,areimportantaspectsofthe group’s monitoring of financial risks. These assets attributed to segments, totalled€836millionat30September2010, compared to €726 million at 30 September 2009.

Thegroup’soperatingactivitiesarenormallycashgenerative,saveforinvestmentsinproperty, 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, therewasconsiderableinvestmentinthegroup’s infrastructure, reflected in €129 million additions to property, plant and equipment and €19 million to intangible assets.

Going concern. Thegroup’sbusinessactivities,togetherwith the factors likely to affect its future development,performanceandposition,are set out in the Chairmen’s statement on pages 2 to 5. The financial position of the group, its cash flows and liquidity arediscussedabove.Inaddition,note23to the financial statements sets out the group’sobjectives,policiesandprocessesfor risks arising from the group’s 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, theBoardbelievesthatthegroupiswellplaced 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, themembersofELLPvotedtoaccept the merger into the group of the KPMG member firms in Norway and the Kingdom of Saudi Arabia. At the date of approvaloftheseaccounts,however,therelatedagreementstogivelegaleffecttothese mergers had not been completed.

In addition, the group acquired two small Belgiancompaniesprovidingauditservices.Furtherdetailsaregiveninnote28tothefinancial statements.

The group also exercised its call options overtheKPMGAuditentityinSpainandtheKPMGLuxembourgentityprovidingtaxservices.Furtherdetailsaregiveninnote28.

Treasury and risk policies. The group’s presentation currency is the euro. The principal functional currencies of the group’s operating subsidiaries in the year were the euro, pound sterling, Swiss franc and rouble. The principal treasury risks of the group relate to exchangerate,liquidityandinterest– full details of the group’s 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 whichthegrouphasasubstantiallevelofinsurancecoverandextensiveriskmanagement policies, as discussed in theCorporategovernancesectiononpages48to51.


Report to the memberscontinued

Members’ remuneration. The distributable profits for each accounting period are determined by the Board and are allocated to each member bytheExecutiveCommittee.Amembermayreceiveincomeunderacontractwitha 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 CompaniesAct2006)Regulations2008(the2008Regulations)requirethemembers to prepare group financial statements for each financial year. Under thatlawthemembershaveelectedtoprepare the group financial statements in accordance with IFRS as adopted by the EU.

UnderRegulation8ofthe2008Regulationsthemembersmustnotapprovethefinancial statements unless they are satisfiedthattheygiveatrueandfairviewof 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:

• selectsuitableaccountingpoliciesandthen apply them consistently;

• makejudgementsandestimatesthatare reasonable and prudent;

• statewhethertheyhavebeenpreparedin accordance with IFRS as adopted by the EU; and

• preparethefinancialstatementsonthegoing concern basis unless it is inappropriate to presume that the group will continue in business.

UnderRegulation6ofthe2008Regulations the members are responsible for keeping adequate accounting records that are sufficient to show and explain the partnership’s transactions and disclose with reasonable accuracy at any time its financial position and enable them to ensure that its financial statements complywiththoseregulations.Theyhavegeneral responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and topreventanddetectfraudandother irregularities.

The members are responsible for the maintenance and integrity of the corporate and financial information included on the group’s website. Legislation in the UK governingthepreparationanddissemination 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.

Wehaveauditedthegroupfinancialstatements of KPMG Europe LLP for the year ended 30 September 2010 which comprise the consolidated income statement, the consolidated statement of comprehensiveincome,theconsolidatedstatement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes. These financialstatementshavebeenpreparedunder the accounting policies set out therein.

Wehavereportedseparatelyontheparent 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) Regulations2008.Ourauditworkhasbeen undertaken so that we might state to the members those matters we are required to state to them in an auditor’s 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 haveformed.

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 relevantlegalandregulatoryrequirementsand 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 adequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus,or the group financial statements are not in agreement with the accounting records andreturns,orifwehavenotreceivedallthe 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,onatestbasis,ofevidencerelevanttotheamountsanddisclosuresinthe 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 group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessaryinordertoprovideuswithsufficientevidencetogivereasonableassurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming ouropinionwealsoevaluatedtheoveralladequacy of the presentation of information in the group financial statements.

Opinion. In our opinion the group financial statements:

• giveatrueandfairviewofthestateofthe group’s affairs as at 30 September 2010 and of its profit for the year then ended;

• havebeenproperlypreparedinaccordance with IFRSs as adopted by the European Union; and

• havebeenpreparedinaccordance with the Companies Act 2006 as applied by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations2008.

Stephen P. S. Weatherseed Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 13 December 2010

58|KPMG Europe LLP | Annual Report 2010

Consolidated income statement. for the year ended 30 September 2010.

Millions Euros Note2010

€m2009

€m

Revenue. 3 4,065 3,495Other operating income. 5 156 120Personnel costs. 6 (2,389) (1,948)Depreciation and amortisation. 11,12 (83) (52)Other operating expenses. 7 (1,236) (1,171)Operating profit. 513 444Financial income. 8 96 121Financial expense. 8 (106) (113)Net financial (expense)/income. (10) 8

503 452Negativegoodwillarisingintheyear. 9 9 –Profit before taxation. 512 452Tax expense. 10 (10) (6)Profit for the financial year. 502 446

Profit for the financial year, attributable to: Members as owners of the parent entity. 501 446Non-controlling interests. 1 –

502 446

Consolidated statement of comprehensive income. for the year ended 30 September 2010.


€m2009

€m

Profit for the financial year. 502 446Other comprehensive income. Foreign exchange translation differences. 29 (74)Changeinfairvalueofavailable-for-saleassets. 1 3Actuarial losses on defined benefit pension plans. 21 (183) (164)Related tax effect. 10 42 21Other comprehensive income for the year, net of tax. (111) (214)Total comprehensive income for the financial year. 391 232

Total comprehensive income for the financial year, attributable to:. Members as owners of the parent entity. 390 232Non-controlling interests. 1 –

391 232


Consolidated statement of financial position. at 30 September 2010.

Assets. Millions Euros Note2010

€m

2009 Restated

€m

Non-current assetsProperty, plant and equipment 11 579 427Intangible assets 12 108 88Securitiesandotherinvestments 13 61 58Deferred tax assets 14 91 49Taxreceivable 10 12 14Employee benefits 21 10 28Non-currentloansandreceivables 15 13 25

874 689Current assetsTradeandotherreceivables 16 1,321 929Amounts due from members 22 152 146Otherinvestments 17 103 96Taxreceivable 13 12Cashandcashequivalents 18 309 270

1,898 1,453Total assets 2,772 2,142

Equity and liabilitiesOtherreservesclassifiedasequity,beingequityattributable to members, as owners of the parent entity 537 589Non-controlling interests (9) –Total equity 528 589LiabilitiesNon-current liabilitiesEmployee benefits 21 254 105Amounts due to members 22 3 –Provisions 20 185 165Deferred tax liabilities 14 18 5Other non-current liabilities 7 9

467 284Current liabilitiesShort-term bank borrowings 23 181 158Trade and other payables 19 986 749Tax payable 15 34Amounts due to members 22 417 194Provisions 20 39 35Members’ capital 22 139 99

1,777 1,269Total liabilities 2,244 1,553Total equity and liabilities 2,772 2,142

Total members’ interestsMembers’ capital 139 99Otherreserves 537 589

676 688Amounts due from members (152) (146)Amounts due to members 420 194Total members’ interests 944 736

Thefinancialstatementsonpages58to97wereapprovedbythememberson13December2010andweresignedontheirbehalfby:

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


Consolidated statement of changes in equityat 30 September 2010

Millions Euros

Members’ other

reserves€m

Fairvaluereserve

€m

Translation reserve

€mTotal

€m

Non- controlling

interests €m

Total equity

€m

Balanceat1October2008 855 (3) (90) 762 – 762

Total comprehensive incomeProfit for the financial year 446 – – 446 – 446Foreign exchange translation differences – – (74) (74) – (74)Changeinfairvalueofavailable-for-saleassets – 3 – 3 – 3Actuarial losses on defined benefit pension plans (164) – – (164) – (164)Related tax effect 21 – – 21 – 21Totalcomprehensiveincome 303 3 (74) 232 – 232

Profits allocated to members during the year (395) – – (395) – (395)Other transactions (10) – – (10) – (10)Balance at 30 September 2009 753 – (164) 589 – 589

Total comprehensive incomeProfit for the financial year 501 – – 501 1 502Foreign exchange translation differences – – 29 29 – 29Changeinfairvalueofavailable-for-saleassets – 1 – 1 – 1Actuarial losses on defined benefit pension plans (183) – – (183) – (183)Related tax effect 42 – – 42 – 42

Totalcomprehensiveincome 360 1 29 390 1 391Profits allocated to members during the year (442) – – (442) – (442)Non-controlling interests acquired on acquisition – – – – – –Dividendspaidtonon-controllinginterests – – – – (9) (9)Other transactions – – – – (1) (1)Balance at 30 September 2010 671 1 (135) 537 (9) 528


Consolidated statement of cash flowsfor the year ended 30 September 2010


€m2009

€m

Cash flows from operating activitiesProfit for the financial year 502 446Adjustments forTax expense 10 10 6Negativegoodwillarisingintheyear 9 (9) –Depreciation and amortisation 11, 12 83 52Financial income 8 (96) (121)Financial expense 8 106 113

596 496(Increase)/decreaseintradeandotherreceivables (112) 238Increase/(decrease) in trade and other payables 10 (144)Decreaseinprovisionsandemployeebenefits (33) (31)Cash generated from operations 461 559Interest and other financial costs paid (8) (7)Corporate taxes paid (26) (16)Net cash flow from operating activities before transactions with non-salaried members 427 536Paymentstooronbehalfofmemberswithoutemploymentorservicecontracts (390) (413)Net cash flows from operating activities 37 123Cash flows from investing activitiesCash acquired on business combinations (net of cash paid) 9 122 2Proceeds from sale of property, plant and equipment 14 1Interestandotherfinancialincomereceived 8 6 9Dividendspaidtonon-controllinginterests (9) –Disposalofinvestmentsandsecurities – 29Acquisitionofinvestmentsandsecurities (6) –Acquisition of property, plant and equipment (129) (131)Developmentandacquisitionofcapitalisedintangibleassets 12 (19) (31)Net cash flows from investing activities (21) (121)

Cash flows from financing activitiesShort-term bank borrowings (11) 63Loansadvanced – (17)Capital introduced by members 22 33 14Capital repayments to members 22 (16) (7)Net cash flows from financing activities 6 53Netincreaseincashandcashequivalents 22 55Cashandcashequivalents–beginningoftheyear 270 283Effects of exchange rate fluctuations 17 (68)Cash and cash equivalents at the end of the year 18 309 270


Notesforming part of the consolidated financial statements

1 Accounting policies. KPMG Europe LLP (the partnership) was incorporatedintheUKon17November2006 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 havebeenappliedconsistentlytoallperiods presented in these consolidated financialstatementsandhavebeenapplied 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 (adoptedIFRSs)havebeenendorsedbytheEuropeanUnionwitheffectivedatessuch 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:

• ImprovementstoIFRSs(issuedbytheIASBinMay2008):variouseffectivedates, all of which are mandatory for the year ended 30 September 2010.

• RevisedIFRS3‘Businesscombinations’:effectiveforperiodsbeginning on or after 1 July 2009.

• AmendmentstoIAS27‘Consolidatedand Separate Financial Statements’: effectiveforperiodsbeginningonorafter 1 July 2009.

• AmendmenttoIFRS7‘ImprovingDisclosures about Financial Instruments’:effectiveforperiodsbeginning on or after 1 January 2009.

• ImprovementstoIFRSs(issuedbytheIASBinApril2009):variouseffectivedates, some of which are for periods beginning on or after 1 July 2009, others for periods beginning on or after 1 January 2010.Thelatterhavebeenearlyadoptedin these financial statements.

The amendments to IFRS 3 and IAS 27 aretobeappliedprospectivelyandsohavebeenappliedinaccountingforbusiness combinations occurring during the year ended 30 September 2010 but havehadnoimpactontheaccountingforbusiness combinations occurring in prior periods. Additional disclosures in respect of business combinations occurring during theyearended30September2010havebeenprovidedasaresultoftheamendments (see note 9).

It has also been necessary to reclassify a €40 million lease prepayment from non-currentreceivablestoproperty,plantandequipment 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 ImprovementstoIFRSs(issuedbytheIASB in April 2009). As this payment had notbeenmadeat30September2008,arising only on legal completion of the propertydevelopmentinApril2009,restatementin2008isnotrelevantandhence no restated information as at 30September2008(aswouldberequiredundertheRevisiontoIAS1–seebelow)has been presented.

Theremainingamendmentshaveresultedin a small number of insignificant changes todisclosuresgiveninthegroup’sfinancialstatementsbutotherwisehavehadno impact.

Thegrouphaspreviouslyvoluntarilyadoptedthe following adopted IFRSs and related amendments and interpretations: • IFRS8‘Operatingsegments’:voluntarily

adopted in the year ended 30 September 2008.Thisstandardismandatoryonlyfor listed entities and for such entities is mandatory for financial years beginning on or after 1 January 2009.

• RevisiontoIAS1‘PresentationofFinancialStatements:Revised2007’:early adopted in the year ended 30 September 2009. This standard is effectiveforfinancialyearsbeginningon or after 1 January 2009.

• AmendmentstoIAS32andIAS1‘Puttable financial instruments and obligations arising on liquidation’: early adopted in the year ended 30 September 2009. This standard is effectiveforfinancialyearsbeginningon or after 1 January 2009.

There are no other adopted IFRSs, amendments or interpretations that require mandatory application. The following amendment and interpretation havebeenendorsedandwillbeadoptedby the group in the year ending 30 September 2011:

• AmendmenttoIFRIC14:‘Prepaymentsof a Minimum Funding Requirement’: effectiveforperiodsbeginningonorafter 1 January 2011.

• RevisedIAS24:‘RelatedPartyDisclosures’:effectiveforperiodsbeginning 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 havenoimpact.

Basis of preparation. Thesefinancialstatementshavebeenprepared in accordance with adopted IFRSs.Thefinancialstatementshavebeenapprovedbythemembers.Thefinancialstatements are prepared on the historical costbasisexceptthatallderivativefinancial instruments and certain other financial instruments are stated at their fairvalue.

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 IFRSsthathaveasignificanteffectonthefinancial 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 regardedbytherespectivecountries’partners as being mergers of like-minded professionalservicesfirms,notinvolvingan ‘acquisition’ in the normal sense.


Notesforming part of the consolidated financial statements continued

1 Accounting policies continued. No attempt was made in the merger negotiationstovalueeachfirmonanarm’s length basis, other than for the impact of harmonising accounting policies.

However,adoptedIFRSsdonotpermitthe 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 subsequentmergershaveeachcontainedaspects that meet the definition of a businesscombinationandhavethereforebeen 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,togovernthefinancialandoperating policies of an entity so as to obtainbenefitsfromitsactivities.Inassessingcontrol,potentialvotingrightsthat are currently exercisable or convertiblearetakenintoaccount.Thefinancial 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,overthefinancialandoperatingpolicies. Associates are accounted for using the equity method and are initially recognised at cost. The consolidated financial statements include the group’s shareofthetotalcomprehensiveincomeandequitymovementsofassociates,from the date that significant influence commences until the date that significant influence ceases.

Business combinations. Forbusinesscombinations,fairvaluesthat 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 combinationsachievedinstages,thegrouprevaluesitsequityaccountedinvestmenttothefairvaluereflectingthe conditions at the date of acquisition of the controlling share with any resultant gain or loss recognised in profit or loss. Considerationismeasuredatthefairvalueof liabilities incurred by the group to the previousowners.Goodwillisrecognisedwhere the cost of the business combination exceeds the total of these fair values.Wheretheexcessispositive,itistreated as an intangible asset, subject to annual impairment testing. Where the excessisnegative(referredtointhesefinancialstatementsasnegativegoodwill),it is recognised immediately in the income statement.

The mergers which formed the group, orhavearisensinceformation,reflectexpectations 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 group’s commercial acquisitions where thepurchaseresultsintheacquirerhavingfull access to the profits and cash flows of the entity acquired. Accordingly, in consideringthevaluetobeascribedundereach merger to intangible assets in the acquired firm, allowance is made for an arm’s length assessment of the remuneration of partners in the joining countryfortheirservicestothegroup,asdistinct 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 relevantnetassets.

Intangibleassetshavebeenrecognisedin respect of customer relationships, framework contracts, order books and similar assets. Each category is amortised overitsestimatedusefullife,asfollows:

Customer relationships 7–20yearsFramework contracts 2–4yearsOrder book 3–6months

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.

Forpresentationpurposes,therevenuesand expenses of subsidiary undertakings with a functional currency other than euro aretranslatedatanaverageratefortheperiod where this rate approximates to the foreign exchange rates ruling at the dates of transactions. The assets and liabilities of such undertakings, including goodwill andfairvalueadjustmentsarisingonconsolidation, are translated at foreign exchange rates ruling at the year end. Exchange differences arising from this translation are recognised in other comprehensiveincomeinthetranslationreserve.Theyarereclassifiedfromequityto profit or loss as a reclassification adjustment when a gain or loss on disposaloftherelevantsubsidiaryis recognised.



1 Accounting policies continued. Revenue. Revenuerepresentsthefairvalueoftheconsiderationreceivableinrespectofprofessionalservicesprovidedduringtheyear,inclusiveofrecoverableexpensesincurred on client assignments but excludingvalueaddedtax.Wheretheoutcome of a transaction can be estimated reliably,revenueassociatedwiththetransaction is recognised in the income statement by reference to the stage of completionattheyearend,providedthata right to consideration has been obtained through performance. Consideration accruesascontractactivityprogressesbyreferencetothevalueofworkperformed.Hencerevenueinrespectofservicecontracts represents the cost appropriate to the stage of completion of each contract plus attributable profits, less amounts recognisedinpreviousyearswhererelevant.

Where the outcome of a transaction cannotbeestimatedreliably,revenueisrecognised only to the extent that the costsofprovidingtheservicearerecoverable.Norevenueisrecognisedwhere there are significant uncertainties regardingrecoveryoftheconsiderationdueorwheretherighttoreceivepaymentiscontingentoneventsoutsidethecontrolof the group. Expected losses are recognised as soon as they become probable based on the latest estimates ofrevenueandcosts.

Unbilledrevenueisincludedintradeandotherreceivablesas‘Unbilledamountsforclient work’. Amounts billed on account in excess of the amounts recognised as revenueareincludedin‘Tradeandother payables’.

Recoverableexpensesrepresentchargesfrom other KPMG member firms and sub-contractors and out of pocket expenses incurred in respect of assignments in progressandexpectedtoberecoveredfrom clients.

TaxationFor those group entities that are UK LLPs, taxation on all profits is solely the personal liabilityoftheindividualmembers.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 theindividualmembers,whenthistaxfalls 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’ dependingonwhetherornotdivisionof 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 statementofcomprehensiveincomeundertherelevantheadingandrelatedbalances are carried as tax payable or receivableintheconsolidatedstatementof financial position. Current tax is the expected tax payable on the taxable income for the year, using tax rates enactedorsubstantivelyenactedatyearend, and any adjustment to tax payable in respectofpreviousyears.

Deferred tax in subsidiary companies isprovidedontemporarydifferencesbetween the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporarydifferencesarenotprovidedfor: 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 differencesrelatingtoinvestmentsinsubsidiaries to the extent that they will probablynotreverseintheforeseeable future.

Theamountofdeferredtaxprovidedis based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax ratesenactedorsubstantivelyenactedatyear end. A deferred tax asset is recognised only to the extent that it is probable that futuretaxableprofitswillbeavailableagainst which the asset can be utilised.

Financial income and expenseFinancial income comprises interest and dividendincomeonfundsinvested(includingavailable-for-salefinancialassetsandheld-to-maturityinvestments),discount on property prepayment, expected returns on defined benefit pensionplanassets,gainsonderivativesrecognised in profit or loss, exchange gains and other income. Interest income is recognised as it accrues, using the effectiveinterestmethod.Dividendincome is recognised on the date that thegroup’srighttoreceivepaymentisestablished, which in the case of quoted securitiesistheex-dividenddate.

Financial expense comprises exchange losses, interest cost on short-term bank borrowings,lossesonderivativesrecognised in profit or loss, interest cost on defined benefit pension plan liabilities, discountonprovisionsandotherfinancecosts. All borrowing costs are recognised in the income statement using the effectiveinterestmethod.

Property, plant and equipment. Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Parts of an item ofproperty,plantandequipmenthavingdifferentusefullivesareaccountedforas 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 ofitsfairvalueandthepresentvalueofthe 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.



1 Accounting policies continuedDepreciationisprovidedtowriteoffthecostlesstheestimatedresidualvalueofproperty, plant and equipment and is charged to the income statement on a straight-linebasisovertheestimatedusefullivesofeachpartofanitemofproperty, plant and equipment. The estimatedusefullivesareasfollows:

Leasehold land

999 years (or life of lease, if shorter)

Leasehold buildings

50 years (or life of lease, if shorter)

Office furniture, fittings and equipment

5–12years

Computer and communications equipment

2–5years

Motorvehicles 5 years

Theresidualvalue,ifnotinsignificant,isreassessed annually.

Intangible assets. Expenditure on research is recognised in the income statement as an expense asincurred.Developmentexpenditureoninternally generated software is capitalised if the product or process is technically and commercially feasible and the group has sufficient resources to complete development.Theexpenditurecapitalisedincludes the cost of materials, direct labour and an appropriate proportion ofoverheads.Otherdevelopmentexpenditure is recognised in the income statement as an expense as incurred.

Capitaliseddevelopmentexpenditureandsoftware and licences that are acquired by thegroupandhaveafiniteusefullifearemeasured at cost less accumulated amortisation and impairment losses.

Amortisation is charged to the income statementonastraight-linebasisovertheestimatedusefullivesofintangibleassetsfromthedatethattheyareavailableforuse. The estimated useful life of software and licences and of internally generated softwareisgenerallyfivetoeightyears.

Goodwill, customer relationships, framework contracts and order books are discussed in ‘Business combinations’ above.Goodwillisstatedatcostlessany accumulated impairment losses. Customer relationships, framework contracts and order books are stated at cost less accumulated amortisation.

Non-derivative financial instruments. Non-derivativefinancialinstrumentscompriseinvestmentsinsecuritiesandotherinvestments,tradeandotherreceivables,cashandcashequivalents,loans and borrowings, trade and other payables, members’ capital and amounts due to and from members.

Securities. Ifthegrouphasapositiveintenttohold to maturity securities for which the amounts due are fixed or determinable andhaveafixedmaturity,thentheyareconsidered to be held-to-maturity financial instruments and are classified as non-current securities unless due to mature in less than 12 months. These assets are initiallymeasuredatfairvalue,calculatedby reference to their quoted bid price. Subsequent to initial recognition, these assets are measured at amortised cost, usingtheeffectiveinterestmethod,lessany impairment losses.

Otherinvestments. Otherinvestmentsheldbythegroupmainly comprise bonds, equities and sharesininvestmentfunds.Theseassetsareclassifiedeitherasavailable-for-saleoratfairvaluethroughprofitorlossandarestatedatfairvalue,calculatedbyreferenceto their stock exchange price at the year end.

Any resultant gain or loss on those assetsclassifiedasavailable-for-saleisrecognisedinothercomprehensiveincome,inthefairvaluereserve,exceptfor impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses. When theseinvestmentsarederecognised,thecumulativegainorlossisreclassifiedfromthefairvaluereservetoprofitorloss.Wheretheseinvestmentsareinterestbearing, interest calculated using the effectiveinterestratemethodis recognised in profit or loss.

Any resultant gain or loss on those assets classifiedasfairvaluethroughprofitorlossis recognised in the income statement.

Non-currentloansandreceivables. Non-currentloansandreceivablesareinitiallyrecognisedatfairvalue,basedupontheestimatedpresentvalueoffuture cash flows discounted at the market rate of interest at the year end. Subsequent to initial recognition, non-currentloansandreceivablesare recorded at amortised cost.

Tradeandotherreceivables. Tradeandotherreceivables(exceptunbilled amounts for client work) are recognisedatfairvalue,basedupondiscountedcashflowsatprevailinginterest rates, or at their nominal amount less impairment losses if due in less than 12 months. Subsequent to initial recognition,tradeandotherreceivablesarevaluedatamortisedcostlessimpairment losses.

Short-term bank borrowings. Short-term bank borrowings are recognisedatfairvalue,baseduponthenominal 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 amortisedoverthefacilitylife.

Trade and other payables. Trade and other payables are recognised atfairvalue,baseduponthenominalamount outstanding. Subsequent to initial recognition, they are recorded at amortised cost.

Cashandcashequivalents. Cashandcashequivalentscomprisecash balances and call deposits. The cash andcashequivalentsarestatedattheirnominalvalues,asthisapproximatestoamortised cost.



1 Accounting policies continued. Members’ capital. The capital requirements of the group are determined from time to time by the Board, following recommendations from theExecutiveCommittee.Eachmemberis 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.

Onleavingthepartnership,amember’scapital must be repaid within two months oftheleavingdate,unlessotherarrangementshavebeenagreedbetweenthememberandtheExecutiveCommittee.

Members’ capital is therefore considered aliabilityandisstatedatitsnominalvalue,being the amount repayable.

Thisclassificationwasreviewedinlightof the amendment to IAS 32 and IAS 1 regarding the classification of a puttable financialinstrument.However,thetermsof 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 areinitiallyrecognisedatfairvalue,basedupontheestimatedpresentvalueoffuture 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 membersarestatedattheirnominalvalueas this approximates to amortised cost.

Derivative financial instruments and hedging. Thegroupusesderivativefinancialinstrumentstoprovideaneconomichedge against its exposure to foreign exchange and interest rate risks arising fromoperational,financingandinvestmentactivities.Inaccordancewithitstreasurypolicy, the group does not hold or issue derivativefinancialinstrumentsfortradingpurposes.Thederivativefinancialinstruments used do not satisfy the criteria to be classified as hedging instruments and are treated as financial assets or liabilities held for trading.

Derivativefinancialinstrumentsarerecognisedatfairvalue.Thosewithapositivefairvalueareclassifiedwithin‘Otherinvestments’;derivativefinancialinstrumentswithanegativefairvalueareclassified within ‘Trade and other payables’. Attributable transaction costs are recognised in profit or loss when incurred. Subsequent gains or losses on remeasurementoffairvaluearerecognised immediately in profit or loss. Thefairvalueofinterestrateswapsistheestimated amount that the group would receiveorpayattheyearend,takingintoaccount current interest rates and the current creditworthiness of the swap counterparties.Thefairvalueofforwardexchange contracts is their market price at the year end.

Unbilled amounts for client work. Unbilled amounts for client work relate to servicecontractreceivablesoncompletedwork where the fee has yet to be issued orwheretheservicecontractissuchthatthe 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 therevenueaccountingpolicyabove)lessprovisionforforeseeablelossesandnetof amounts billed on account.

Impairment. The carrying amounts of the group’s assets (except employee benefit and deferredtaxassets)arereviewedateachyear end to determine whether there is any indication of impairment. If any such indicationexists,theassets’recoverableamounts are estimated. For goodwill the recoverableamountisestimatedateachyear end.

Therecoverableamountofreceivablescarried at amortised cost is calculated as thepresentvalueofestimatedfuturecashflows,discountedattheoriginaleffectiveinterestrate(beingtheeffectiveinterestrate computed at initial recognition of thesefinancialassets).Receivableswitha short duration are not discounted. The recoverableamountofotherassetsisthegreateroftheirfairvaluelesscoststosellandvalueinuse.Inassessingvalueinuse, the estimated future cash flows are discountedtotheirpresentvalueusingapre-tax discount rate that reflects current marketassessmentsofthetimevalueofmoney and the risks specific to the asset.

An impairment loss is recognised wheneverthecarryingamountofan asset or its cash generating unit exceeds itsrecoverableamount.Impairmentlossesare recognised in the income statement. An impairment loss in respect of a financial asset carried at amortised cost oroneclassifiedasavailable-for-saleisreversedifthesubsequentincrease inrecoverableamountcanberelatedobjectivelytoaneventoccurringafterthe impairment loss was recognised. In respect of other assets, an impairment lossisreversedwhenthereisanindicationthat the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverableamount.

Animpairmentlossisreversedonlytothe extent that the asset’s carrying amount does not exceed the carrying amountthatwouldhavebeendetermined,net of depreciation or amortisation, if no impairment loss had been recognised. Impairment losses in respect of goodwill cannotbereversed.

Leases. Operating lease rentals are charged to the income statement on a straight-line basis overtheperiodofthelease.Leaseincentivesreceivedarerecognisedintheincome 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.



1 Accounting policies continuedProvisions. Aprovisionisrecognisedwhenthegrouphasapresentlegalorconstructiveobligationasaresultofapasteventandit is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisionsaredeterminedbydiscountingthe expected future cash flows at a pre-tax rate that reflects current market assessmentsofthetimevalueofmoneyand, where appropriate, the risks specific to the liability.

Provisionforonerouscontractsisrecognised when the expected benefits tobederivedbythegroupfromacontractarelowerthantheunavoidablecostofmeeting its obligations under the contract. Provisionismadeforthepresentvalueofforeseeable 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 valueofthebestestimateoftheexpectedliabilities for future payments to retired membersortheirdependantsisprovidedin 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.Anychangesintheprovisionforformer 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 isshownasamovementagainsttheprovision.

Asubstantiallevelofinsurancecoveris maintained in respect of professional negligenceclaims.Thiscoverisprincipallywritten through mutual insurance companies. Premiums are expensed as theyfalldue.Whereappropriate,provisionis made for the uninsured cost to the group of settling negligence claims.

Separate disclosure is not made of insured costsandrelatedrecoveriesonthegrounds that such disclosure would be seriously prejudicial to the position of the group in any dispute with other parties.

Employee benefits. Thegroupoperatesvariousdefinedcontribution 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.

Thegroupalsooperatesseveraldefinedbenefit pension plans including three closed plans. Two of these plans are closedtonewentrantsandprovidebenefits on final pensionable pay whilst the other is closed to new entrants and tocurrentserviceandprovidesbenefitsbasedonaveragepensionablepay.Thegroup’s net obligations in respect of its defined benefit plans are calculated separately for each plan by estimating the amount of future benefit that employees haveearnedinreturnfortheirserviceinthe current and prior periods; that benefit is discounted to determine its present value,andthefairvalueofplanassets(atbid price) is deducted. The liability discount rate is the yield at the year end on AA creditratedbondsthathavematuritydates approximating to the terms of each plan’s obligations. The calculations are performed by qualified actuaries using the projected unit credit method.

Whenthebenefitsofaplanareimproved,the portion of the increased benefit relating topastservicebyemployeesisrecognisedas an expense in the income statement on astraight-linebasisovertheaverageperioduntilthebenefitsbecomevested.Totheextentthatthebenefitsvestimmediately,the expense is recognised immediately in the income statement.

Actuarial gains and losses are recognised in the period in which they occur, in other comprehensiveincome.

Surpluses are recognised on defined benefit pension plans only to the extent thattheyareconsideredtoberecoverableby the group, taking account of future servicebymembersof,andcontributionspayableto,therelevantplan.

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 previouslyretained.

During the year, members in certain countriesreceivesalaryundertheirseparate contracts of employment with subsidiary legal entities and are entitled to bonuses under the same contracts of employment. Members in other countries receiveremunerationbyrenderingchargesfortheirservicespersonallyorfrom 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 KPMGLLPreceivemonthlydrawings, and from time to time, additional profit distributions.Thelevelandtimingoftheadditional distributions are decided by the ExecutiveCommittee,takingintoaccountcash requirements for operating and investingactivities.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 untilprofitshavebeenallocated.Anyover-distribution of profits during the year is alsorecoverablefrommembers.

Pending the allocation of profits and their divisionbetweenmembers,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 ‘Otherreserves’.Inbothcases,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.



2 Accounting estimates and judgements. ManagementhavediscussedandagreedwiththeAuditCommitteethedevelopment,selectionanddisclosureofthegroup’scriticalaccounting policies and estimates and the application of these policies and estimates.

Key sources of estimation uncertainty. Revenueonservicecontracts. Incalculatingrevenueonservicecontracts,thegroupmakescertainestimatesastothestageofcompletionofthosecontracts.Indoing so, the group estimates the remaining time and external costs to be incurred in completing contracts and clients’ willingness andabilitytopayfortheservicesprovided.Adifferentassessmentoftheoutturnonacontractmayresultinadifferentvaluebeingdeterminedforrevenueandalsoadifferentcarryingvaluebeingdeterminedforunbilledamountsforclientwork.

Tradeandotherreceivables. Thetotalcarryingamountoftradereceivablesandunbilledamountsforclientworkis€1,162million(2009:€792million)netofimpairmentlossesontradereceivablesandaftergivingconsiderationtotheclients’willingnesstopaythoseamountsaccruedinrespectofincompletecontracts.Adifferentassessmentoftherecoverabilityofeitherbalancemayresultindifferentvaluesbeing determined.

Employee benefits. The net defined benefit liabilities of the group’s 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,thereisariskthattherewouldbefurthervarianceintheactuarialgainsandlosses.

Inaddition,theaverageexpectedreturnsonassetsineachplanreflecttheanticipatedbalanceineachplan’sinvestmentportfoliobasedoncurrentinvestmentdecisions.Iftheinvestmentstrategyweretochange,thereisariskthattherewouldbefurthervariancebetween the actual and expected return on assets and hence in the actuarial gains and losses. As all actuarial gains and losses are recognisedinthesefinancialstatements,theresultingprovisionforemployeebenefitsmayalsodifferfromthatdisclosedinthesefinancialstatements.Increasesof0.25%intheassumeddiscountrateswouldreducethepresentvalueoftheplans’obligations,andhence the net liabilities recognised in the statement of financial position by approximately €55 million.

Former members’ annuities. Thegrouphasusedcertainassumptionsinassessingtheprovisionforformermembers’annuitiesof€66millionassetoutinnote20.The assumptions used are based upon the current profile of the former members concerned and currently published mortality tables. Ifeitherweretochange,theassumptionsusedincalculatingtheprovisionwouldnolongerbeappropriate.Theresultingvariationintheunderlyingassumptionsmayresultinavaluefortheprovisionthatisdifferentfromthatdisclosed.

Claims. Thegroupfromtimetotimereceivesclaimsinrespectofprofessionalnegligence.Itdefendssuchclaimsvigorouslybutmakesprovisionforthepossibleamountsconsideredlikelytobepayable,uptothedeductibleunderthegroup’srelatedinsurancearrangements.Adifferentassessmentofthesettlementprospectsofeachcase,orofthepossiblecostinvolvedmayresultinadifferentprovisionandcost.

Propertyprovisions. Propertyprovisionsof€45millionarecalculatedbasedoncertainassumptionsregardingtheabilitytosub-lettheproperty,specificallythe amount of time it may take to sub-let and the rental income that may be obtained. A different assessment of the market conditions andsub-leaseincomeachievablemayresultinadifferentvaluebeingdeterminedforsuchprovisions.

Acquisition accounting. UnderIFRS3,‘BusinessCombinations’,theacquirerisrequiredtodeterminefairvalues(reflectingconditionsatthedateofthebusiness combination and its terms) for the identifiable assets, liabilities and contingent liabilities acquired. Within such items will be intangibleassetsreflectingthecurrentvalueofanticipatedincomestreamsfromthecustomerrelationshipsandtheopenorderbookofthepartyacquired.Inassessingthevalueofsuchitems,thegrouphastomakeassumptionsonmatterssuchasthefutureprofitslikelytoariseafterreflectingchargesfortheservicesoftheworkforce(includingtheservicesofthoseindividualswhoseparatelyaremembersofthepartnership)andfortheuseoftheKPMGbrand,aswellastheanticipatedperiodoverwhichbenefitsfromexistingcustomer relationships may endure.

Adifferentassessmentonthesemattersmayhaveresultedinadifferentvaluebeingascribedtotheassetsandhencetothegoodwillcapitalised,orthenegativegoodwillreflectedintheincomestatement.Forexample,a5%reductionintheassumedcostofmembers’serviceswouldhaveincreasedtherecognisedfairvalueofintangibleassetsoftheacquiredentitiesby€5million.A5%increaseinthechargeassumedfortheuseoftheKPMGbrandwouldreducetherecognisedfairvaluesofintangibleassetsoftheacquiredentitiesby€3 million.



2 Accounting estimates and judgements continued. Critical accounting judgements in applying the group’s 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.Thecreationofthegroupin2008andsubsequentmergerseachmetthedefinitionofabusinesscombination.Hence,fairvaluesmustbedeterminedfortheidentifiableassets,liabilitiesandcontingentliabilitiesacquired,andforthecostoftheacquisition,eventhoughinternallythesetransactionswereeachregardedasapoolingofinterestswithnoattempttovalueeachfirmonanarm’slength 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 relatedmergerdocumentation,werenotdraftedtoclarifycontrolwithinthecontextoftherelevantaccountingstandard.Thegrouphasassessedthatcertainentitiesfalltoberegardedonlyasassociatesoverwhichsignificantinfluenceisexercisedandthatotherentitiesaresubjecttoneithercontrolnorsignificantinfluence,evenwheretheseentitiesconstituteintegralpartsoftheoperationsof the KPMG member firms in these countries.

3 Segmental reporting. Segment information is presented in respect of the group’s segments, reflecting the group’s 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 presentingsegmentinformationunderIFRS8.T&R,R&CandP&TpreviouslymadeuponeAdvisoryoperatingsegmentandcomparativefigureshavebeenrestatedaccordingly.

Thesegmentsareidentifiedforinternalreportingpurposesaccordingtothenatureofservicesprovided;principalservicesprovidedby each segment include:

Audit:. Provisionofstatutoryandregulatoryattestationservices,adviceincompliancewithchangingreportingandregulatoryrequirements,andnon-statutoryassuranceservices.

Tax:. Adviceandcomplianceassistanceinrelationtotax,remunerationplanningandpensions.T&R:.

Dealsupportfrompre-dealevaluationtocompletionincludingstrategy,duediligence,debtandequityadvice,valuations,separationandintegration;provisionofrestructuringandrecoveryadvice,includingcorporateandpersonalinsolvency;financialadviceonpublicandprivatetransactionsincludingmergersandacquisitions,flotationsandvaluations.

R&C:.

Provisionofadviceonembeddinggovernance,riskmanagementandinternalcontrolsandoncompliancewithchangingregulatoryrequirements;provisionofaccounting,investigationandbusinessskillstoassistclientsinvolvedincontentiousfinancial matters.

P&T:.

Adviceandsupporttoimprovebusinessperformancethroughtransformingoperations,businessintelligenceandfinancetransformation,workingcapitalandcashmanagement,revenueenhancementandcostoptimisation,ITenabledtransformation,embeddingriskandregulatorymanagementanddealservices.



3 Segmental reporting continued. Information by segment is as follows:

Segmental reporting 2010. Millions EurosAudit

€mTax€m

T&R€m

R&C€m

P&T€m

Total€m

Grossrevenue(asreportedinternally) 1,899 968 732 464 458 4,521Entities not controlled by ELLP (371)Impact of foreign exchange 42Other financial statements adjustments (127)Total group revenue 4,065Segmental contribution (as reported internally) 696 380 304 150 129 1,659Entities not controlled by ELLP (123)Impact of foreign exchange 17Members’ remuneration adjustments (26)Costs not allocated to segments (1,014)Net financial expense (10)Negativegoodwillarisingintheyear 9Total group profit before taxation 512Segmental assets (as reported internally) 217 255 148 119 97 836Entities not controlled by ELLP (10)Impact of foreign exchange 14Assets not allocated to segments 1,932Total assets 2,772

Segmental reporting 2009 (restated)Audit

€mTax€m

T&R€m

R&C€m

P&T€m

Total€m

Grossrevenue(asreportedinternally) 1,758 902 714 453 394 4,221Entities not controlled by ELLP (736)Impact of foreign exchange (7)Other financial statements adjustments 17Total group revenue 3,495Segmental contribution (as reported internally) 636 320 274 146 120 1,496Entities not controlled by ELLP (251)Impact of foreign exchange (3)Members’ remuneration adjustments 60Costs not allocated to segments (858)Net financial income 8Total group profit before taxation 452Segmental assets (as reported internally) 198 225 136 105 62 726Entities not controlled by ELLP (125)Impact of foreign exchange (12)Assets not allocated to segments 1,553Total assets 2,142

Theinformationreportedinternallyforeachofgrossrevenue,profitsandassetsincludesdataforvariousentitieswhicharenotcontrolled 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 yearandthisrateisusedinreportingactual,budgetandprioryeardata,thuseliminatingtheimpactofexchangeratemovements: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.

Inaddition,certainotheradjustmentsaremadetorevenuereportedinthefinancialstatementscomparedtothatreportedinternallyandcertainjudgementstakeninrespectofrevenueonincompletecontractsmaydifferforfinancialstatementspurposes.



3 Segmental reporting continued. Asdiscussedinnote1,membersincertaincountriesreceiveremunerationunderemploymentorservicecontractswhilstmembersworkingwithinKPMGLLPhavenocontractualrighttoremunerationuntilprofitsareallocatedtothem.InternalreportingthereforeincludesanotionalchargeforUKmembers,intendedtoequatetoasalaryequivalent,whilstmembers’remunerationinothercountries 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, trainingandothergeneraloverheadexpenses(includingdepreciation,amortisationandothernon-cashitems).Thesearenotdirectlycontrollable by the segments and are not allocated to them in the group’s internal reporting. Allocation of such items to the segments wouldinvolvesubjectiveassessmentsanditisnotthereforeconsideredappropriate.

Assetsattributedtothesegmentsforinternalreportingpurposescomprisetradereceivablesandunbilledamountsforclientwork.All other assets, including non-current assets, balances with members and cash are controlled centrally and are not allocated across segments.Thereisnointernalreportingofliabilitiesbysegment;hencenosegmentaldisclosuresaregiven.

ThereflectionofentitiesnotcontrolledbyELLPandtheimpactofforeignexchangeadjustments,themovetofivesegmentsandcertainrevisionstotheallocationofcostsbetweensegmentsandcentralcostsallrepresentchangestotheinternalpresentationofsegmentalinformationcomparedtothatapplyingin2009.Comparativefigureshavebeenrestatedaccordingly.

Geographical disclosures. Revenuefromexternalclientsandnon-currentassets(excludingdeferredtaxassets,employeebenefitsandinvestmentsheld-to-maturity)bygeographicalsegmentareassetoutbelow.Bothrevenueandnon-currentassetsrelatetoentitiessituatedineachcountry.

Geographical segment

Revenue Non-current assets

Millions Euros2010

€m2009

€m2010

€m2009

€m

United Kingdom 1,843 1,834 551 450Germany 1,187 1,241 65 71Netherlands 436 – 33 –Other countries 728 472 84 50Intercountry eliminations (129) (52) (44) (30)

4,065 3,495 689 541

The group’s results for financial statements purposes include:

• KPMGmemberfirmsinUK,Germany,Switzerland–2010:fullyear;2009:fullyear;• CertainentitiesoftheKPMGmemberfirminSpain–2010:fullyear,entitiesprovidingtaxandadvisoryservices,andthreemonths,entityprovidingauditservices;2009:fullyear,entitiesprovidingtaxandadvisoryservices;

• CertainentitiesoftheKPMGmemberfirminBelgium–2010:fullyear;2009:sixmonths;• KPMGmemberfirmintheNetherlandsprovidingauditandadvisoryservices–2010:11months;2009:nil;• KPMGmemberfirminLuxembourg–2010:fullyear,entityprovidingtaxservices,andsevenmonths,entitiesprovidingauditandadvisoryservices;2009:nil;

• KPMGmemberfirmintheCommonwealthofIndependentStates(CIS,comprisingentitiesinRussia,Ukraine,Armenia,Georgia,KazakhstanandKyrgyzstan)–2010:eightmonths;2009:nil.

See note 9 for further details regarding acquisition dates.

Major clients. Thegrouphasnorelianceonanyoneclient–nomorethan1.6%(2009:1.4%)ofgrouprevenueisattributabletothelargestclient.



4 Pro-forma information. Thefollowingdataprovidespro-formainformation,presentedasifthegrouphadexistedinitsformat30September2010throughthetwoyearsendedonthatdate–thatis,includingKPMGLuxembourg,KPMGCIS,KPMGNetherlandsandtherelevantentitiesinBelgium and Spain throughout.

Pro-formarevenueandgrowthrates(atconstantexchangerates)bynationalsub-groupfortheyearended30September2010were:

Millions Euros2010

€m %

United Kingdom 1,843 –Germany 1,187 (4)Netherlands 477 (8)Other countries 914 4Inter-country eliminations (141) –

4,280 (3)

Thesepro-formarevenuesandgrowthrates(atconstantexchangerates)canbeanalysedbyfunctionasfollows:

Millions Euros2010

€m %

Audit 1,787 (7)Tax 865 (2)T&R 716 (4)R&C 455 (8)P&T 457 17

4,280 (3)

Onapro-formabasis,asifthegrouphadexistedthroughthetwoyearsended30September2010,averagefull-timeequivalentheadcountwouldhavebeen28,190(2009:29,266)–afallof4%.

Market-industry revenues. Pro-formarevenuebymarket-industryisgivenbelow,withgrowthratescomparedto2009onconstantexchangerates:

Millions Euros2010

€m %

Consumer & Industrial Markets 1,469 (8)FinancialServices 1,259 4Infrastructure,Government&Healthcare 971 (1)Information, Communications & Entertainment 451 (17)PrivateEquity 130 20

4,280 (3)

5 Other operating income. Included in other operating income are the following items:

Millions Euros2010

€m2009

€m

Charges to other KPMG International member firms 44 45Support cost charges to non-group KPMG entities within ELLP countries 35 31Rental income 21 11Other items 56 33

156 120



6 Members and other personnel. Theaveragenumbersofmembers(beingthosewhoaremembersofthepartnership)andotherpersonnelofthegroupduringtheyear were as follows:

Millions Euros

2010 Full-time

equivalent

2009 Full-time

equivalent

Members 1,362 1,114Other personnel 24,451 19,783

25,813 20,897

Theaveragenumbersofmembersandotherpersonnelbyfunctionwereasfollows:

Millions Euros

2010 Full-time

equivalent

2009 Full-time

equivalent

Audit 9,942 6,965Tax 5,005 4,987T&R 2,668 2,835R&C 2,481 1,907P&T 2,260 1,492Central 3,457 2,711

25,813 20,897

Theaggregateemploymentcostsofpersonnelaresetoutbelow.TheseincludethosecostsofmembersreceivingsalaryandbonusesundercontractsofemploymentorservicecontractswithsubsidiaryentitiesbutexcludeamountsinrespectofmembersreceivinganallocationofprofitofthepartnershiporKPMGLLP.

Employment costs

Millions Euros2010

€m2009

€m

Salaries (including bonuses) 2,104 1,717Social security costs 178 141Cost of employee benefits (note 21) 107 90Personnel costs per income statement 2,389 1,948

Net financing cost charged to the income statement in respect of defined benefit pension plans 3 2Amountsrecognisedinthestatementofcomprehensive income in respect of defined benefit pension plans 183 164Total personnel related costs 2,575 2,114

7 Other operating expenses. OtheroperatingexpensesincludepropertyandITcosts,marketing,trainingandothergeneraloverheadexpenses,togetherwithdirectexpensesincurredonclientassignments.Alsoincludedinotheroperatingexpensesareimpairmentlossesontradereceivablesof€5million(2009:€8million).

Amountstotalling€220,000werepayabletothegroupauditors,GrantThornton,forauditservices,inrespectofthepartnershipandtheconsolidatedfinancialstatements(2009:€270,000).Afurther€856,000(2009:€636,000)waspayabletothegroupauditorsand €66,000 (2009: €57,000) payable to other auditors in respect of subsidiary entities’ financial statements. In addition, the group auditorsreceived€36,000(2009:€45,000)fortheauditofcertainofthegrouppensionplans.Thegroupauditorsandtheirassociatesdidnotprovideanynon-auditservicesduringeitheryear.



8 Financial income and expense.

Millions Euros2010

€m2009

€m

Expected return on defined benefit pension plan assets (note 21) 73 73Discount on property prepayment – 7Interest income on bank deposits 1 5Netchangeinfairvalueoffinancialassetsatfairvaluethroughprofitorloss 3 5Interest income on held-to-maturity securities 2 2Interestincomeonavailable-for-salefinancialassets 2 –Exchange gains 14 27Other financial income 1 2Financial income 96 121

Interest on defined benefit pension plan liabilities (note 21) (76) (75)Discountonprovisions(note20) (6) (5)Interest expense on short-term bank borrowings (3) (3)Exchange losses (16) (24)Other financial costs (5) (6)Financial expense (106) (113)

Thetotalinterestincomeforfinancialassetsthatwerenotclassifiedasfairvaluethroughprofitorlosswas€5million(2009:€7million).Thetotalinterestexpenseforfinancialliabilitiesthatwerenotclassifiedasfairvaluethroughprofitorlosswas€3million(2009: €3 million).

9 Business combinations. ThedetailsetoutbelowprovidesinformationrequiredunderIFRS3‘BusinessCombinations’forthosemergersandacquisitionsoccurring during the year ended 30 September 2010. If the mergers and acquisitions set out below had each occurred on 1 October 2009,consolidatedrevenueandprofitwouldhavebeen€4,280millionand€502millionrespectively.

Mergers. Mergers–yearended30September2009. During the year ended 30 September 2009, the partnership acquired all the shares in certain entities in the KPMG member firms in SpainandBelgium.Asforpreviousmergerswithinthegroup,thesemergersmetthedefinitionofabusinesscombinationunderIFRS3 and were presented as acquisitions by the partnership. Summary details of those mergers are as follows:

• Spain:thepartnershippaid€4million,satisfiedby€1millionmembers’capitalinthepartnershipand€3millioncash,inexchangefor net identifiable assets, liabilities and contingent liabilities of €4 million.

• Belgium:thepartnershippaid€2million,satisfiedinmembers’capitalinthepartnership,inexchangefornetidentifiableassets,liabilities and contingent liabilities of €(5) million. Goodwill of €7 million arose on the acquisition of entities in Belgium (see note 12).

• CalloptionsweregrantedoversharesintheentitiesinSpainandBelgiumprovidingauditservicesandentitiesinBelgiumprovidingtaxandaccountingservices:theseoptionswerenotyetexercisablein2009.

Mergers–yearended30September2010. During the year ended 30 September 2010, the group continued with its strategy of merging with other member firms within the KPMGInternationalnetworksoastobenefitfromsynergiestobeobtainedinenhancedclientservicedeliveryandcostefficiency.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:

• WiththeexceptionofTurkey(see(c)below),themergerseachmetthedefinitionofabusinesscombinationunderIFRS3andaretherefore presented as acquisitions by the partnership.

However,thefinancialarrangementsagreedamongstthemembersinrespectofeachmergerdonotfalleasilywithintheconsiderations 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 localcontractsofemploymentorservicecontractsor,intheUKandforanyfuturecountrieswhosestructureisthatofapartnership,asprofitshares,withnodifferentiationmadebetweenremunerationforservicestothegroupandreturnoncapitalsubscribed.



9 Business combinations continued. Mergers. Mergers–yearended30September2010. • Sharesinentitiesacquiredwereexchangedformembers’capitalorsimilarinstrumentsand,fromthedateofacquisition,the

partners in the entities acquired therefore became members of the partnership and had an ownership interest in the partnership. Thefairvalueofthemembers’interestsisequaltotheamountcontributed,asaresultofthefollowingattributes:

– Thelevelsofcapitaltakenoaccountofthe‘value’of,andinparticulartheamountofanygoodwillinherentin,thememberfirminvolvedandattractnopossibilityofcapitalappreciation.

– Onleavingthefirm,membersreceivenocompensationforthevalueofthefirm,oranyinherentgoodwill,‘sold’atthedateofretirement,norforanyincreaseinthisvalueorinherentgoodwillthatmightbeattributedtotheireffortsonthefirm’sbehalf;theyare rather repaid the same amount originally contributed as capital.

– Individualspromotedtomember,orjoiningfromoutsideatthatlevel,arerequiredtocontributeapre-definedsumascapitalatanamountthatisthesameforallindividualsineachgroupmembercountry.

• Calloptionshavebeengrantedovercertainsharesbutarenotyetexercisable.However,novalueisattributedtotheseoptionsasthecosttothegroupofexercisingtheseoptionsdoesnotchangeovertime,nordoesthefairvalueoftheassetsoftheentitiesbeingacquired, since profits (or losses) generated between the date of the mergers and the date of exercising the options will accrue to thepartnersineachcountry.Hencealthoughtheoptionsfalltobetreatedasderivativeinstruments,theyhavenegligiblefairvalue.

• Pre-acquisitioncarryingamountshavebeendeterminedfromaccountsofeachacquiredentityasatthedateofacquisitionunderapplicableadoptedIFRSs.Thevaluesofassets,liabilitiesandcontingentliabilitiesrecognisedonacquisitionaretheirestimatedfairvalueswhichapproximatedtotheirpre-acquisitioncarryingamountsinnearlyallcases.Thefollowingfairvalueadjustmentswereconsidered for each merger:

– Intangibleassetsforthecurrentvalueofanticipatedincomestreamsresultingfromcustomerrelationships,frameworkcontractsand order books. This calculation (in accordance with the accounting policies in note 1) reflects charges for the use of the KPMG brand(assessedagainstcomparablepubliclyavailabledataforentitiesintheserviceindustries),fortheworkforceandworkingcapitaloftheentitiesacquired(netofapplicabletaxes)andachargefortheservicesofequitypartnerswhichexcludestheirestimatedreturnoncapital.Itassumesanappropriatefutureaverage‘churnrate’forcustomerrelationships,normallyof10years.Theresultingcashflowswerediscountedtocurrentvaluesusinganestimatedweightedaveragecostofcapital.

– NovalueisascribedtouseoftheKPMGbrandinanycountryasneitherthepartnershipnortheentityacquiredcontrolstheserights. – Fairvaluereviewswerecarriedoutonanumberofotherliabilities,includingcontingentliabilitiesforunrecognisedprofessional

negligenceclaims,andonassets,includingthecarryingvalueofcontingentfeeassignments.

• Wherenegativegoodwillarises,thisisnormallyattributabletoundistributedreserves.Positivegoodwillisnormallyattributabletotheskillsandknowledgeoftheworkforceandthesynergiesexpectedtobeachievedfromintegratingtheacquiredentity,whichare not assets recognisable under adopted IFRSs.

a) Netherlands. On28October2009,thepartnershipobtainedcontroloverKPMGNV,theparentcompanyfortheKPMGInternationalmemberfirmprovidingauditandadvisoryservicesintheNetherlands(KPMGNetherlands).TheseparateKPMGInternationalmemberfirmprovidingtaxservicesintheNetherlands,KPMGMeijburg&Co,wasnotinvolved.Considerationwasintheformof‘depositoryreceipts’, 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 group’s assets and liabilities at acquisition:

Millions Euros

Pre-acquisition carrying

amounts €m

Fair value

adjustments €m

Recognised on

acquisition €m

Property, plant and equipment 23 9 32

Intangible assets – 9 9Tradeandotherreceivables 104 – 104Otherreceivables 23 – 23Cashandcashequivalents 62 – 62Trade and other payables (180) (9) (189)Provisions (12) – (12)Net identifiable assets, liabilities and contingent liabilities 20 9 29

Attributable to non-controlling interests (9)Goodwill on acquisition –Consideration paid, satisfied in the form of depository receipts 20



9 Business combinations continued. a) Netherlands continued. Thetradereceivablesarenetofimpairmentprovisionof€5millionforthosereceivablesthatwereexpectedtobeuncollectableattheacquisition date.

Amountsattributabletonon-controllinginterestsarebasedonthefairvaluesofthenetassetsacquired.

Revenueandprofitaftertaxationof€436millionand€1millionrespectivelyforthe11monthsended30September2010areincludedwithin 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,KazakhstanandKyrgyzstan)(KPMGCIS).Thepartnershipobtainedcontrolovertheentitieswithin KPMG CIS on 4 February 2010, acquiring the following:

• 100%ofentitiesoperatinginGeorgia,KazakhstanandKyrgyzstan;• 49%and100%oftwoentitiesoperatinginRussia;• 50%ofanentityoperatinginArmenia;• 100%and30%oftwoentitiesoperatinginUkraine.

Wherelessthan100%ofsharesareheld,theremainingsharesareheldbylocalpartnersasaresultoflocallegislativerequirementswithcalloptionsgrantedtothegroup(butnotcurrentlyexercisable).Ineachcase,thepartnershipneverthelesshastherighttocontrol these entities under the agreements in place and they are considered to be subsidiaries under IFRS.

Thenon-controllinginterestsinKPMGCISwerevaluedat€2millionattheacquisitiondatebasedonthefairvaluesofthenetassetsacquired.Thisvaluerepresentsthefairvalueofthoseinterestsattheacquisitiondatewhichisbasedonthetermssetoutintheagreements.Whilstthenon-controllinginterestsareentitledtoashareofthecapitaloftheseentities,theydonothaverightstoashare in profits post-acquisition.

Furthermore,thegroupmergedwiththeKPMGmemberfirminLuxembourg.Themergercompletedon6November2009, the partnership acquiring the following:

• 50%oftheentityprovidingtaxservices.Thepartnershipalsohasexercisableoptionsovertheremaining50%oftheshares. TheentityisthereforeconsideredtobeasubsidiaryunderIFRSfrom6November2009.

• 49%oftheentitiesprovidingauditandadvisoryservices.Thepartnershiplaterexerciseditsoptionstoacquiretheremaining 51%ofthesharesfollowingenactmentinLuxembourgoftheEU8thDirective.Inthiscase,thepartnershipisnotconsidered tohavehadcontrolpriortotheexerciseoftheoptionson22February2010andsotheentityisconsideredtohavebeenanassociate of the group until that date.

Thenon-controllinginterestof50%oftheentityprovidingtaxserviceswasvaluedat€1millionattheacquisitiondatebasedonthefairvalueofthenetassetacquired.Thisvaluerepresentsthefairvalueoftheinterestattheacquisitiondatewhichisbasedonthetermssetoutintheagreement.Whilstthenon-controllinginterestsareentitledtoashareofthecapitalofthisentity,theydonothaverights to a share in profits post-acquisition.

Atthedateofacquisitionoftheremaining51%oftheentitiesprovidingauditandadvisoryservices,thefairvalueoftheequityinterestwas€nilwhichwasalsoitsequityaccountedvalueatthatdate.

InJuly2010,theEU8thDirectivewasenactedintoSpanishlaw.Thepartnershiphadbeengrantedcalloptionsin2009overallthesharesinKPMGAuditoresSL,thecompanywithinKPMGSpainwhichprovidesauditservices.Followingthelegislativechange,these options became immediately exercisable and hence this company fell to be treated as a subsidiary from that date. The options werenotinfactexercisedduringtheyearandhencethegroupaccountsreflectanegativenon-controllinginterestof100%ofthiscompany,valuedat€12million,beingthenetliabilitiesofthecompanyatthedateatwhichthecompanybecameasubsidiary.



9 Business combinations continued. These transactions had the following effect on the group’s assets and liabilities on acquisition:

Millions Euros

Pre-acquisition

carrying amounts

€m

Fairvalueadjustments

€m

Recognised on

acquisition€m

Property, plant and equipment 31 – 31

Intangible assets – 17 17

Deferred tax assets 1 – 1

Tradeandotherreceivables 137 – 137Otherreceivables 4 – 4Cashandcashequivalents 62 – 62Trade and other payables (135) – (135)Short-term bank borrowing (25) – (25)Deferred tax liabilities (6) (5) (11)Other payables (81) – (81)Net identifiable assets, liabilities and contingent liabilities (12) 12 –

Attributable to non-controlling interests 9Negativegoodwillonacquisition (9)Consideration paid, being members’ capital –

Thetradereceivablesarenetofimpairmentprovisionof€9millionforthosereceivablesthatwereexpectedtobeuncollectableattheacquisition date.

Amountsattributabletonon-controllinginterestsarebasedonthefairvaluesofthenetassetsacquired,andrepresent€(12)millioninrespect of KPMG Auditores, €2 million in respect of KPMG CIS and €1 million in respect of KPMG Luxembourg.

Revenueandprofitof€253millionand€nilrespectivelyisincludedwithintheseconsolidatedfinancialstatementsinrespectofKPMGCIS, KPMG Luxembourg and KPMG Auditores SL.

c) Turkey. Alsoduringtheyear,theKPMGmemberfirminTurkey(KPMGTurkey)mergedwithELLP.However,thepartnershipisnotpermittedto own shares in the existing entities within KPMG Turkey as a result of local regulatory constraints. Instead, the partnership has call optionsover100%oftheshares,exercisableonlyintheeventthatlocallawischanged,butisconsideredtohavesignificantinfluenceovertheentitiesundertheagreementsinplace.Hence,theseentitiesareconsideredtobeassociatesunderIFRS,albeitwithanilshareholding. In acquiring those call options, the group assumed certain liabilities in respect of an external loan payable by the entities inTurkey.Hence,thecalloptionshaveacarryingvalueequivalenttothisloanpayable,being€1million.

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 intendedthatnewadvisoryworkwillbeprovided.Thisentityhadnotcommencedtradingat30September2010.

Acquisitions. Duringtheyear,KPMGUKacquired100%ofthesharesintwoUKcompaniesprovidingadvisoryservices,AnaliticaLimitedandKPMGITAdvisoryLimited(thencalledDNVGlobalITServicesLimited)forconsiderationof€2millionand€0.3millionrespectively.Intangible assets of €2 million relating to customer relationships were recognised in accounting for these acquisitions.



10 Tax expense. Groupcompaniesaresubjecttoavarietyofincometaxesbasedontheirtaxableprofitsatratesbetween25%and34%.

Limitedliabilitypartnerships,however,arenotsubjecttotaxation;rathertheirmembersaresubjecttopersonalincometax,mainlyintheUK,whichisapersonalliabilityofthemembersindividually.

The tax expense recognised in the income statement is analysed as follows:

Millions Euros2010

€m2009

€m

Current tax expenseCurrent year 16 20Adjustment in respect of prior years 1 1Deferred tax expense/(credit) (note 14) 2 (5)

19 16CompensationpaymenttobereceivedfrommembersofKPMGLLP (9) (10)Total tax expense in income statement 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:

Millions Euros2010

€m2009

€m

Profit before taxation 512 452Less profit arising in limited liability partnerships, on which tax is payable by the members personally (473) (431)Profit before taxation arising in group companies 39 21Taxat30%(2009:30%)beingtheaveragerateofcorporate taxesleviedontheprofitsofgroupcompanies 12 6UK corporation tax arising on UK transfer pricing arrangements 9 10Impactoftaxexemptitems,includingnegativegoodwillanddifferences between profits under adopted IFRSs and profits under local tax legislation, netofrelevantdeferredtax (2) –Taxes payable by subsidiary undertakings 19 16CompensationpaymenttobereceivedfrommembersofKPMGLLP (9) (10)Total tax expense in income statement 10 6

Thetaxcreditrecognisedinthestatementofcomprehensiveincomeisasfollows:

Millions Euros2010

€m2009

€m

Netchangeinfairvalueofavailable-for-salefinancialassets – 1Actuarial gains and losses on defined benefit pension plans (42) (22)

(42) (21)

Includedinnon-currentassetsistaxreceivableof€12million(2009:€14million)whichrepresentsthecurrentvalueoftaxrefundsinGermany,receivableoversevenyears.



11 Property, plant and equipment.

Millions Euros

Land and buildings (restated)

€m

Computer and

communi-cations

equipment €m

Office furniture,

fittings and equip ment

€m

Motor vehicles

€m

Total (restated)

€m

CostBalanceat1October2008 – 63 141 15 219

Acquisition of subsidiaries – 3 4 – 7Additions 307 20 38 4 369Disposals – (10) (24) (3) (37)Exchangemovements (10) (6) (15) (2) (33)Balance at 30 September 2009 297 70 144 14 525Acquisition of subsidiaries 10 16 36 1 63Additions – 18 108 3 129Disposals (10) (10) (23) (4) (47)Exchangemovements 18 3 8 – 29Balance at 30 September 2010 315 97 273 14 699

Depreciation and impairmentBalanceat1October2008 – 45 58 6 109Charge for the year – 15 20 3 38Disposals – (10) (24) (2) (36)Exchangemovements – (5) (7) (1) (13)Balance at 30 September 2009 – 45 47 6 98Charge for the year 1 19 29 3 52Disposals – (10) (21) (2) (33)Exchangemovements – 2 1 – 3Balance at 30 September 2010 1 56 56 7 120

Net book valueAt1October2008 – 18 83 9 110At 30 September 2009 297 25 97 8 427At 30 September 2010 314 41 217 7 579

Land and buildings at 30 September 2010 relate entirely to the group’s 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 prepaymentof€40millionmadeunderthisleaseinApril2009hasbeenreclassifiedfromnon-currentreceivables(seenote15).Thenetbookvalueofassetsownedunderafinanceleasewas€314million(2009:€297million).Additionstoofficefurniture,fittingsandequipment 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.



12 Intangible assets.

Millions EurosGoodwill

€m

Customer relation-

ships and similar items

€m

Interally generated software

€m

Purchased software

and licences €m

Total €m

Cost

Balanceat1October2008 – 6 82 3 91Acquisition of subsidiaries 7 4 2 2 15Additions – – 31 – 31Disposals – (3) (12) – (15)Exchangemovements – – (10) – (10)Balance at 30 September 2009 7 7 93 5 112Acquisition of subsidiaries – 28 – – 28Additions – – 14 5 19Disposals – (15) (10) (4) (29)Exchangemovements – – 4 – 4Balance at 30 September 2010 7 20 101 6 134

Amortisation Balanceat1October2008 – – 27 1 28Charge for the year – 3 10 1 14Disposals – (3) (12) – (15)Exchangemovements – – (3) – (3)Balance at 30 September 2009 – – 22 2 24Charge for the year – 17 9 5 31Disposals – (15) (10) (4) (29)Exchangemovements – – – – –Balance at 30 September 2010 – 2 21 3 26

Net book valueAt1October2008 – 6 55 2 63At 30 September 2009 7 7 71 3 88At 30 September 2010 7 18 80 3 108

InternallygeneratedsoftwaremainlycomprisescomponentsoftheSAP-basedERPsystem,whichhaveremainingamortisationperiodsofsixtoeightyears(2009:seventoeightyears).

GoodwillwasgeneratedonthemergerwithcertainentitiesoftheKPMGmemberfirminBelgium(seenote9).Therecoverableamountofthegoodwillhasbeendeterminedusingthe‘valueinuse’basis;therecoverableamountisbasedontheanticipatedprofitsto 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. Thenetbookvaluesofsecuritiesandotherinvestmentsheldbythegroupwereasfollows:

Millions Euros2010

€m2009

€m

Fixed income securities 44 43Sharesininvestmentfunds 13 12Otherinvestments 4 3

61 58

Includedwithinotherinvestmentsis€0.5million(2009:€0.5million)representingthegroup’sshareofnetassetsofassociates(seenote 27).

KPMG Europe LLP|AnnualReport2010|81AnnualReport2010|81Report2010|81


14 Deferred taxes. Recognised deferred tax assets and liabilities relating to the following assets and liabilities were:

Assets Liabilities Assets Liabilities

Millions Euros2010

€m2010

€m2009

€m2009

€m

AssetsNon-current assetsIntangible assets 2 (4) 3 (2)Property, plant and equipment – (2) – (2)Other non-current assets – (3) – (3)Current assetsTradereceivables – (3) – (1)Receivablesforunbilledservices – (17) – (13)Securities – (1) – (1)LiabilitiesNon-current liabilitiesPensions and similar obligations 89 – 47 –Otherprovisions 16 (1) 15 (1)Current liabilitiesOtherprovisions – (4) – (5)Other liabilities 6 (7) 7 (1)Offsetting (24) 24 (24) 24Offsetoftaxlossesavailabletobecarriedforward 2 – 1 –Balance at 30 September 91 (18) 49 (5)

Deferredtaxassetshavenotbeenrecognisedinrespectoftaxlossestotalling€25million(2009:€7million).

Movementsduringtheyearwere:

Millions Euros

Opening balance

€m

Acquired during

the year €m

Deferred tax credit/(expense)

€m

Credit/(charge)

recognised in equity

€m

Closing balance

€m

AssetsNon-current assetsIntangible assets 1 (5) 2 – (2)Property, plant and equipment (2) – – – (2)Other non-current assets (3) – – – (3)Current assetsTradereceivables (1) (3) 1 – (3)Receivablesforunbilledservices (13) 2 (6) – (17)Securities (1) – – – (1)LiabilitiesNon-current liabilitiesPensions and similar obligations 47 – – 42 89Otherprovisions 14 – 1 – 15Current liabilitiesOtherprovisions (5) – 1 – (4)Other liabilities 6 (6) (1) – (1)Offsetoftaxlossesavailabletobecarriedforward 1 1 – – 2Total 44 (11) (2) 42 73



15 Non-current loans and receivables.

Millions Euros2010

€m

2009Restated

€m

Loans 4 21Othernon-currentreceivables 9 4

13 25

In2009,a€40millionpropertyprepaymentrelatingtotheleaseoverlandat15CanadaSquare,Londonwasclassifiedasanon-currentreceivable.Thishasbeenreclassifiedtoproperty,plantandequipmentfollowingtheamendmenttoIAS17‘Leases’(seenote11).

16 Trade and other receivables.

Millions Euros2010

€m2009

€m

Tradereceivables 779 536Unbilled amounts for client work 383 256Other prepayments 81 58Otherreceivables 51 44Amounts owed by other KPMG International member firms 27 35

1,321 929

Grouptradereceivablesareshownnetofimpairmentlossesamountingto€27million(2009:€18million);themovementfortheyearisrecognisedin‘Otheroperatingexpenses’.Anagedanalysisofoverduetradereceivablesandmovementintheallowanceforimpairmentinrespectoftradereceivablesisgiveninnote23.

Tradeandotherreceivablesareduewithin12months.

17 Other investments.

Millions Euros2010

€m2009

€m

Bonds 44 39Sharesininvestmentfunds 30 29Fixed income securities 14 14Equities 14 14Derivativefinancialassets 1 –

103 96

18 Cash and cash equivalents.

Millions Euros2010

€m2009

€m

Short-term deposits 203 233Bank balances 106 37Cash and cash equivalents 309 270

19 Trade and other payables.

Millions Euros2010

€m2009

€m

Accruals 509 408Amounts billed on account 183 137Other taxes and social security 123 79Other payables 106 72Trade payables 45 33Amounts due to other KPMG International member firms 20 20

986 749

Included in accruals are amounts payable to personnel (excluding members) in respect of bonuses.



20 Provisions.

Millions EurosAnnuities

€m

Property provisions

€m

Obligations to employees (other than pensions)

€mOther

€mTotal

€m

Balance at 1 October 2009 57 38 41 64 200

Acquisition of subsidiaries – 5 6 1 12Utilised during the year (4) (3) (26) (5) (38)Transfers – – 5 – 5Income statement:–Provisionsmadeduringtheyear 7 4 22 10 43–Provisionsreleasedduringtheyear – – – (11) (11)–Unwindingofdiscountedamounts 3 – 3 – 6Exchange differences 3 1 – 3 7Balance at 30 September 2010 66 45 51 62 224

Non-current 62 35 51 37 185Current 4 10 – 25 39

66 45 51 62 224

Theprovisionforformermembers’annuitiesreflectsconditionalcommitmentstopayannuitiestocertainformermembers(anddependants) of KPMG LLP or its predecessor partnership, and is recorded gross of basic rate tax (see note 1).

Theprovisionforformermembers’annuitiesisexpectedtobeutilisedasfollows:

Millions Euros2010

€m2009

€m

Within 12 months of the year end 4 4Betweenoneandfiveyears 15 14Betweenfiveandfifteenyears 26 22In more than fifteen years 21 17

66 57

Theprincipalactuarialassumptionsusedinassessingtheprovisionforformermembers’annuitiesarethatincreasesinannuitiespayable 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%).

Themortalitytablesusedfortheformermembers’annuitiesprovisionatboth30September2010and2009wereconsistentwiththose applied in respect of the UK defined benefit pension plans (see note 21).

Propertyprovisionsrepresentthecostofofficespacewhichisnotcurrentlyusedbythegrouporwillbecomeredundantasaresultofstepstowhichthegroupiscommitted.Thenetobligationundersuchleaseshasbeenprovidedfor.Propertyprovisionsof€10million(2009:€1million)willbeutilisedwithin12monthsandthebalanceisexpectedmainlytobeutilisedwithinthenextfiveyears.

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.

Otherprovisionsincludeassessmentsofpossibleamountspayableinrespectofcertainoperationalrisksbutalsoreflectprovisionsinrespectofnegligenceclaimsbroughtagainstthegroupbythirdparties.Whereappropriate,provisionismadefortheuninsuredcost(including related legal costs) to the group of settling negligence claims. Separate disclosure is not made of insured costs and related recoveriesonthegroundsthatsuchdisclosurewouldbeseriouslyprejudicialtothecommercialinterestsofthegroup.Theseprovisionsareexpectedmainlytobeutilisedwithinfiveyears.



21 Employee benefits. The cost of employee benefits included within personnel costs for the year was:

Millions Euros2010

€m2009

€m

Contributions to defined contribution pension plans 77 62Currentservicecostfordefinedbenefitpensionplans 30 28Cost of employee benefits 107 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 Liabilities

Millions Euros2010

€m2009

€m2010

€m2009

€m

Capitalisedvalueofreinsurancepolicies 2 2 – –Capitalisedvalueofriskinsurancepolicies 8 8 – –UK defined benefit plans – – (147) (93)German defined benefit plans – 18 (87) –Swiss defined benefit plans – – (20) (12)

10 28 (254) (105)

Thecapitalisedvalueofpension-relatedriskinsurancepoliciesrelatestoclaimsagainstaninsurancecompanywhichprovidescoverunder certain risk insurance policies for certain employees. On the death of an employee before reaching pensionable age, KPMG AG isobligedtopaypre-definedlumpsumstosurvivingdependants.TheinsurancecompanyreimbursesKPMGAGforallsuchpaymentsmade.Thereimbursableamountsarerecognisedasanassetatthelevelofthecorrespondingliabilitywhichisreflectedinthe 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-April2000fund,whichisclosedtonewentrants.Thechargefortheyearfortheseplansrepresentsthosecontributionspayable 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 contributionstoadefinedcontributionpensionplanandsofalltobedisclosedabove.

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. Thegrouphasseveraldefinedbenefitpensionplans.Fordisclosurepurposes,thesearegroupedgeographically.

Defined benefit pension plans in the UK. There are two defined benefit pension plans in the UK.

TheKPMGStaffPensionFund–pre-April2000fund(thepre-2000fund)isaplanclosedtonewentrantsandtocurrentservice,providingbenefitsbasedonaveragesalary.Contributionsfrommemberswerepaidupto1April2000.Thegroup’scontributionsareagreedbetweenthegroupandthetrusteebasedonadvicefromtheindependentactuary,HewittBacon&Woodrow,derivedfromtriennialvaluationsusingtheattainedagemethod;anagreedfundingplanisinplace.



21 Employee benefits continued TheKMGThomsonMcLintockPensionScheme(theTMcLplan)isadefinedbenefitplan,closedtonewentrants,providingbenefitsbased on final pensionable pay. The plan is contributory for members and the group’s contributions are the balance of the cost of providingthebenefits;contributionspayableareagreedbetweenthegroupandthetrusteebasedonadvicefromtheindependentactuary,HewittBacon&Woodrow,derivedfromtriennialvaluationsusingtheattainedagemethod.

Defined benefit pension plan in Germany. AdefinedbenefitpensionplanisoperatedinGermanycoveringemployeesinsubstantiallyalltheGermanentities.Theplan,whichisclosedtonewentrants,providesbenefitsbasedonfinalpensionablepayandisnon-contributoryformembers.Nopre-definedamounts are set for the group’s contributions.

Defined benefit pension plan in Switzerland. ApensionplanisoperatedinSwitzerlandwhichfallstobetreatedasadefinedbenefitpensionplan.Theplanprovidesforeitheralumpsum payment on retirement or a pension, computed after taking account of the Swiss state social security pension. Although the pensionprovidedisapredeterminedpercentageoftheaccumulatedfundforeachmemberoftheschemeandthecontributionsofbothemployeeandemployerarepre-defined(varyingwithsenioritywithinthefirm,ageandtheclassofmembership),thegroupisliableforthecostofinterveninginterestandaccordinglytheplanranksasadefinedbenefitplanunderIAS19.

Definedbenefitpensionplans–valuationanddisclosure. ValuationsofthedefinedbenefitpensionplanshavebeenprovidedonanIAS19basisasat30September2010and2009byKPMGprofessionally qualified in-house actuaries in the UK and by independent external actuaries in Germany and Switzerland.

Theprincipalactuarialassumptions(expressedasweightedaverages)usedforthevaluationswereasfollows:

Actuarial assumptions.

UK plans German plan Swiss plan

2010 percent

2009 percent

2010 percent

2009 percent

2010 percent

2009 percent

Discount rate 4.95 5.60 4.25 5.50 2.55 3.35Future salary increases* 4.35 4.25 3.00 3.00 1.50 1.50Increase in pensions in payment** 3.30 3.20 1.70 1.70 – 0.10Inflation 3.35 3.25 3.00 3.00 1.30 1.30

* NotrelevantfortheUKpre-2000fund. ** FortheUK,thisrelatestopost-April1997serviceonly–therearenoincreasesinpensionsinpaymentforpre-April1997service.

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%)fortheSwissplan,thedifferencesreflectingthedifferentmixofassetinvestmentsineachplanasdetailedbelowandreflecting different market rates of return in each country. The expected rates of return on plan assets are determined by reference to relevantindices.Theoverallexpectedrateofreturniscalculatedbyweightingtheindividualratesinaccordancewiththeanticipatedbalanceintheplans’investmentportfolios.

Allplanshavebeenvaluedusingmortalityassumptionswhichretainprudentallowanceforfutureimprovementinlongevity.Themortality tables used for the UK plans at both 30 September 2010 and 2009 were PNXA00 projected by year of birth for both current andfuturepensioners,withanallowancemadeforfutureimprovementsviathemediumcohorteffectandamortalityimprovementfloor (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.

Thesetablesleadtolifeexpectanciesforapensionerretiringtodayatage60of25.4to27.7years(males)and28.3to29.4years(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).



21 Employee benefits continued. Thefairvaluesoftheplans’assets,whicharenotintendedtoberealisedintheshort-termandmaybesubjecttosignificantchangebeforetheyarerealised,andthepresentvalueoftheplans’liabilities,whicharederivedfromcashflowprojectionsoverlongperiodsand thus are inherently uncertain, were:

Plan assets and liabilities.


Millions Euros2010

€m2009

€m2010

€m2009

€m2010

€m2009

€m

Equities 385 361 84 – 102 85CorporateandGovernmentbonds 130 141 321 288 159 133Hedge funds 58 – – – – –Property – – – – 34 29Cashandcashequivalents 3 2 148 244 26 22Capitalisedvalueofreinsurancepolicies – – 72 70 – –Fairvalueofplans’assets 576 504 625 602 321 269Presentvalueoffundeddefinedbenefitobligations (723) (597) (712) (584) (341) (281)

Present value of net (obligation)/surplus being the net (liability)/asset in the statement of financial position (147) (93) (87) 18 (20) (12)

Movementsinthepresentvalueofthefundeddefinedbenefitobligationsfortheplanswereasfollows:


Millions Euros2010

€m2009

€m2010

€m2009

€m2010

€m2009

€m

At 1 October (597) (536) (584) (521) (281) (245)Currentservicecost (1) (1) (11) (10) (18) (17)Interest on obligations (35) (33) (31) (32) (10) (10)Actuarial losses (71) (121) (113) (47) (12) (11)Benefits paid 18 17 27 26 29 23Employee contributions – – – – (10) (10)Exchangemovements (37) 77 – – (39) (11)At 30 September (723) (597) (712) (584) (341) (281)

Thetotalcurrentservicecostsof€30million(2009:€28million)arerecognisedin‘Personnelcosts’intheconsolidatedincomestatement. The total interest on obligations of €76 million (2009: €75 million) is charged to the income statement within ‘Financial expense’.

Movementsinthefairvalueoftheplans’assetswereasfollows:


Millions Euros2010

€m2009

€m2010

€m2009

€m2010

€m2009

€m

At 1 October 504 524 602 578 269 249Expected return on plan assets 33 32 28 29 12 12Actuarial gains/(losses) 18 30 (11) (10) 6 (5)Benefits paid (18) (17) (27) (25) (29) (23)Contributions by employers 8 7 33 30 16 15Employee contributions – – – – 10 10Exchangemovements 31 (72) – – 37 11At 30 September 576 504 625 602 321 269

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 Germanplan(2009:€19million)and€18millionfortheSwissplan(2009:€7million).



21 Employee benefits continued. Actuarial gains/(losses) recognised in the year may be analysed as follows:


Millions Euros2010

€m2009

€m2010

€m2009

€m2010

€m2009

€m

Actuarial gains/(losses) on obligations (71) (121) (113) (47) (12) (11)Actuarial gains/(losses) on assets 18 30 (11) (10) 6 (5)

(53) (91) (124) (57) (6) (16)

Actuarial gains and losses arise as a result of a change in assumptions or represent experience adjustments. Actuarial gains and lossesarerecognisedinthestatementofcomprehensiveincomeintheperiodinwhichtheyoccur.Cumulativenetactuariallossesreportedinthestatementofcomprehensiveincomesince1October2004,thetransitiondatetoadoptedIFRSs,are€186million(2009:cumulativelossesof€3million).

Thehistoryofexperiencegainsandlosseswhiletherelevantentitieshavebeenwithinthegroupisasfollows:


Millions Euros2010

€m2009

€m2008

€m2007

€m2006

€m2010

€m2009

€m2008

€m2010

€m2009

€m2008

€m

Presentvalueofthedefinedbenefit obligation (723) (597) (536) (678) (772) (712) (584) (521) (341) (281) (245)Fairvalueofplans’assets 576 504 524 707 681 625 602 578 321 269 249

Presentvalueofnetsurpluses/(obligations) (147) (93) (12) 29 (91) (87) 18 57 (20) (12) 4

Experience gains and (losses) arising on plans’ liabilities 8 – 9 3 (15) 4 7 (2) 10 (11) n/a

Experience gains and (losses) arising on plans’ assets 18 30 (141) 18 25 (11) (10) (7) 6 (5) 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.

BecausetaxationinLLPsisapersonalliabilityoftheindividualmembers,nodeferredtaxontheUKpensionplanbalancesfallstoberecordedinthegroupfinancialstatements.However,deferredtaxassetsof€84millioninrespectoftheGermanplan’sobligations(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 Limitedasindependenttrustee.Non-currentassetsoftheGermanpensionplanhavebeentransferredtoKPMGPensionTruste.V.andKPMGPartnerVermögensvereine.V.TheassetsoftheSwissdefinedbenefitplanareheldwithinindependentpensionfoundations. The assets of the group’s defined contribution plans are held by independent trustees.



22 Equity, members’ capital and other interests. Equityincludesmembers’otherreservescomprisingcertainamountsretainedfromprofitsarisinginpreviousyearspendingtheirallocationtomembers.Othermovementsinmembers’otherreservesmainlyrepresentcompensationamountspayabletoUKsubsidiary undertakings for corporation tax liabilities (see note 10).

Equityalsoincludesthefairvaluereservearisingontherevaluationofavailable-for-saleassets,andtranslationreserves,beingthoseexchange differences arising on the translation of non-euro subsidiaries.

Movementsinmembers’capitalareasfollows:

Millions Euros €m

Balanceat1October2008 97Capital introduced by members 14Capital allocated in respect of acquisitions 2Repayments of capital (7)Exchangemovements (7)Balance at 30 September 2009 99Capital introduced by members 33Capital allocated in respect of acquisitions 20Repayments of capital (16)Exchangemovements 3Balance at 30 September 2010 139

Members’ other interests comprise amounts due (to)/from members as follows:

Millions Euros2010

€m2009

€m

Amounts due from members 152 146Amounts due to members: non-current (3) –Amounts due to members: current (417) (194)

(268) (48)

Amounts due from members relate to drawings and on-account profit distributions paid to members of UK LLPs.

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 liabilitiesrelatetopartnerloans.IntheeventofawindingupofanLLP,amountsduetomembersmaybeset-offagainstamountsduefrom 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 ofthegroup.Itis,andhasbeenthroughouttheperiodunderreview,thegroup’spolicythatnotradinginfinancialinstrumentsshallbe undertaken.

The group has exposure to market risk, credit risk and liquidity risk arising from its use of financial instruments. This note presents informationaboutthegroup’sexposuretoeachoftheaboverisksandthegroup’sobjectives,policiesandprocessesformeasuringand managing risk.

TheBoardhasoverallresponsibilityfortheestablishmentandoversightofthegroup’sriskmanagementframework.Thegroup’srisk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls,andtomonitorrisksandadherencetolimits.Riskmanagementpoliciesandsystemsarereviewedregularlytoreflectchangesinmarketconditionsandthegroup’sactivities.Thegroup,throughitstrainingandmanagementstandardsandprocedures,aimstodevelopadisciplinedandconstructivecontrolenvironmentinwhichallemployeesunderstandtheirrolesandobligations.

Furtherquantitativedisclosuresareincludedthroughouttheseconsolidatedfinancialstatements.



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 group’sincomeorthevalueofitsholdingsoffinancialinstruments.Theobjectiveofmarketriskmanagementistomanageandcontrol market risk exposures within acceptable parameters, while optimising the return.

Thegroupusesderivativesonacase-by-casebasisinordertomanagemarketrisks.Thegroupdoesnotholdorissuederivativefinancial instruments for trading purposes.

Interest rate risk. Thegroupfacesinterestraterisksfrominvestingandfinancingactivities.ThepositionsheldarecloselymonitoredbytheTreasuryfunction and proposals are discussed to align the positions with market expectations. Use of interest rate options or swaps is consideredbutnosuchderivativeswereinfactenteredintoduringtheyear.

Exchange rate risk. Thefunctionalcurrencyofthepartnershipistheeuro.Thefunctionalcurrenciesofeachofitssubsidiariesareassessedindividuallyandareconsideredmainlytoinvolvetheeuro,poundsterling,Swissfrancorrouble.However,certainexpensesandchargesfromother KPMG International member firms or other international relationships are denominated in currencies other than the functional currencyofeachentity.Inaddition,somefeesarerenderedinothercurrencieswherethisisrequestedbytheclientsinvolved.

Thegroupmaintainscurrencycashbalancesandusescurrencyswapsorforwardforeignexchangecontractsinordertocoverexposuretoexistingforeigncurrencyreceivablesandpayablesandalsotocommittedfuturetransactionsdenominatedinaforeigncurrency.

In respect of other monetary assets and liabilities denominated in foreign currencies, the group ensures that its net exposure is kept to anacceptablelevelbybuyingorsellingforeigncurrenciesatspotrateswhennecessarytoaddressshort-termimbalances.

Equity price risk. Equitypriceriskarisesfromfairvaluethroughprofitorlossequitysecurities.MaterialinvestmentswithintheportfolioaremanagedonanindividualbasisandallbuyandselldecisionsareapprovedbyatleastoneBoardmemberortheChiefFinancialOfficer.

Theprimarygoalofthegroup’sinvestmentstrategyistomaximiseinvestmentreturns;managementisassistedbyexternaladvisorsinthisregard.Inaccordancewiththisstrategycertaininvestmentsaredesignatedatfairvaluethroughprofitorlossbecausetheirperformanceisactivelymonitoredandtheyaremanagedonafairvaluebasis.

(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,andarisesprincipallyfromthegroup’sreceivablesfromclients,securitiesandotherinvestments.

Tradeandotherreceivables. Exposuretocreditriskismonitoredonaroutinebasisandcreditevaluationsareperformedonclientsasappropriate.Thegroupdoesnot require security in respect of financial assets.

Thegroup’sexposuretocreditriskisinfluencedmainlybytheindividualcharacteristicsofeachclient.Creditriskismonitoredfrequently, 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 receivablesandinvestments.Thisallowancecomprisesaspecificlosscomponentthatrelatestoindividuallysignificantitems,andacollectivelosscomponent.Thiscomponentisestablishedforgroupsofsimilarassetsinrespectoflossesthathavebeenincurredbutnot yet identified and is determined from historical data in each country of payment statistics for similar financial assets updated for current economic conditions.

Securities,otherinvestmentsandderivatives. Cashinvestmentsaremadeonlyinliquidsecurities,mainlyfixed-termdepositsorGovernmentorhigh-qualitycorporatebonds,andaremonitoredregularly.Derivativesareconcludedwithhighqualitycounterpartiesonlyandaremonitoredregularly.



23 Financial instruments continued. b) Credit risk continued. The maximum exposure to credit risk is represented by the carrying amount of the group’s financial and other assets as set out in the table below.

Millions Euros2010

€m2009

€m

Tradereceivables 779 536Bank balances and cash deposits 309 270Amounts due from members 152 146Non-currentloansandreceivables 13 25Otherreceivables 51 44Amounts owed by other KPMG International member firms 27 35Loans and receivables 1,331 1,056Available-for-sale: sharesininvestmentfunds 43 41Held-to-maturity: fixed income securities 58 57Bonds 44 39Equities 14 14Derivatives 1 –Fair value through profit and loss 59 53Total financial assets 1,491 1,207Unbilled amounts for client work 383 256

1,874 1,463

Impairment losses. Theageingofreceivablesthatwereoverdueatthereportingdatewas:

Millions Euros

Gross 2010

€m

Impairment 2010

€m

Gross 2009

€m

Impairment 2009

€m

Trade receivablesOverdue1–30days 107 – 59 –Overdue31–180days 125 3 79 3Morethan180days 38 24 28 15

270 27 166 18

Themovementintheallowanceforimpairmentinrespectoftradereceivablesduringtheyearwasasfollows:

Millions Euros2010

€m2009

€m

Balance at 1 October 18 14Acquisition of subsidiaries 14 2Impairment loss recognised 5 8Impairmentlossreversed (11) (5)Exchange differences 1 (1)Balance at 30 September 27 18

Therearenosignificantimpairmentprovisionsagainstotherfinancialassets.



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 group’s approach to managingliquidityistoensurethatitwillalwayshavesufficientliquiditytomeetitsliabilitieswhentheyfallduewithoutincurringunacceptable losses or risking damage to the group’s reputation.

Thefocusofthegroup’streasurypolicyistoensurethattherearesufficientfundstofinancethebusiness.Surplusfundsareinvestedaccordingtotheassessmentofratesofreturnavailablethroughthemoneymarketorfrombondsorequities.

The Treasury department monitors the group’s significant cash positions daily and it is the group’s policy to use finance facilities or to investsurplusfundsefficiently.Limitsaremaintainedonamountstobedepositedwitheachbankingcounterpartandthesearereviewedregularlyinthelightofmarketchanges.

Thegrouphasaccesstocommittedoverdraftandrevolvingcreditfacilitieswhicharedrawndownasrequired.

Thegrouphasthefollowingnon-derivativefinancialliabilities,measuredatamortisedcost:

Millions Euros2010

€m2009

€m

Accruals 509 408Amounts due to members (current and non-current) 420 194Short-term bank borrowings 181 158Members’ capital 139 99Other payables 106 72Trade payables 45 33Amounts due to other KPMG International member firms 20 20Other non-current liabilities 7 9

1,427 993

The group’s 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 memberfirmsandamountsduetomembers–current–arerepayablewithinoneyear.Assetoutintheaccountingpolicies,members’capitalisrepayablewithintwomonthsofeachmember’sleavingdate.Othernon-currentliabilities,includingnon-currentamountsduetomembers,arerepayablewithintwotofiveyears.

Committedborrowingfacilitiesof€515million(2009:€503million)wereavailableat30September2010tothegroup.Actualamountsdrawnwere€181million(2009:€158million).Ofthesefacilities,€20million(2009:€68million)expiresinoneyearorless,revolvingcredit facilities of €466 million (2009: €396 million) expire in four years and €29 million (2009: €39 million) had no fixed expiry date. Althoughtherevolvingfacilitiesexpireinfouryears,theshort-termbankborrowingsdrawnfromtimetotimeunderthefacilitiesusuallyhaveamaximumtermofthreemonths.Theavailabilityofthesefacilitieswasdependentoncertainconditions,includingaminimumlevelofmembers’capital,allofwhichweresatisfiedat30September2010and2009.Therevolvingcreditfacilityissecuredontheleaseof15CanadaSquare,London;theremainingfacilitiesareunsecured.CertainofthesefacilitiesareavailabletoallentitieswithinKPMG 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:

Millions Euros2010

€m2009

€m

Fixed rate instrumentsSecurities 58 57Bonds 44 39Loans 4 6

106 102

Variable rate instrumentsShort-term bank borrowings (181) (158)Bank balances and cash deposits 309 270Loans – 15

128 127



23 Financial instruments continuedd) Interest rate risk continued. Cashflowsensitivityanalysisforvariablerateinstruments. Achangeof100basispointsininterestratesduringtheyearwouldhaveincreasedordecreasedprofitby€1million(2009:€2million).Thisanalysisassumesthatallothervariables,inparticularforeigncurrencyrates,remainconstant.

e) Exchange rate risk. Assetoutabove,thesubsidiariesofthegrouptradeintheirfunctionalcurrenciesandsodonotgenerallyhavematerialreceivableandpayablebalancesdenominatedinnon-functionalcurrencies.However,at30September2010,thegrouphadbalancestotallingtheequivalentof€23million(2009:€7million)inUSdollarsand€22million(2009:€2million)ineuros.Thegrouphadnomaterialpayablesdenominatedinnon-functionalcurrenciesateither30September2010or2009.A5%movementineithertheUSdollaroreuroclosingexchangerateswouldhaveincreasedordecreasedprofitby€2million.

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 foreuro(2009:tosellSwissfranc27millioninexchangeforeuro).Thefairvalueofthesecontractsat30September2010was€0.5 million (2009: €(0.2) million).

The following significant exchange rates applied during the year:

Averagerate Reporting date spot rate

2010 2009 2010 2009

Pound sterling 0.8694 0.8750 0.8581 0.9100Swiss franc 1.4286 1.5139 1.3286 1.5086US dollar 1.3565 1.3529 1.3652 1.4662Rouble 40.7349 n/a 41.7550 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 unchangedovertime,asdoesthevalueofnetassetstobeacquired.

g) Fair values. Theestimatedfairvaluesofthegroup’sfinancialassetsandliabilitiesapproximatetheircarryingvaluesat30September2010and2009,largelyowingtotheirshortmaturity.Thebasesfordeterminingfairvaluesaredisclosedinnote1.Thetablebelowanalysesfinancialinstrumentscarriedatfairvalue,byvaluationmethod.Thedifferentlevelshavebeendefinedasfollows:

• Level1:quotedprices(unadjusted)inactivemarketsforidenticalassetsandliabilities;• Level2:inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly(forexample,asprices)orindirectly(forexample,derivedfromprices);

• Level3:inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinputs).

Level1 €m

Level2 €m

Level3 €m

Total€m

30 September 2010Sharesininvestmentfunds 43 – – 43Bonds 44 – – 44Equities 14 – – 14Derivatives – 1 – 1

101 1 – 102

30 September 2009Sharesininvestmentfunds 41 – – 41Bonds 39 – – 39Equities 14 – – 14

94 – – 94

TherehavebeennotransfersbetweenLevel1and2duringtheyear.



24 Operating leases. The group’s total commitments under non-cancellable operating leases are as follows:

Non-cancellable operating lease rentals.

Millions Euros2010

€m2009

€m

Within one year 159 117Betweenoneandfiveyears 499 315Morethanfiveyears 473 304

1,131 736

Anumberofofficefacilitiesareleasedunderoperatingleases.Theperiodsoftheleasesvary;leasepaymentsaregenerallysubjecttorentrevieweveryfiveyearsintheUKbutnormallyarefixedinothercountries.

Operating lease disclosures.

Millions Euros2010

€m2009

€m

Amountsreceivablefromsub-letproperties:–withinoneyear 14 8–withintwotofiveyears 29 8Operating lease cost for the year in ‘Other operating expenses’ 166 111Operating lease income for the year in ‘Other operating income’ 21 11

Thegroupalsoleasescertaincomputerequipment,officeequipmentandmotorvehiclesunderoperatingleases.Theseleasestypically 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 provisionhasbeenmade,were€12million(2009:€9million)forthegroup.Thesecommitmentsareexpectedtobesettledinthefollowing 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. Thisdatacentrewillbeconstructedover15monthstoDecember2011,foruseinitiallybythememberfirmsintheUKandGermany.Thegrouphascommittedtopay€112millionunderthecontractoverthecourseofthenextsevenyears.

ThepartnershiphasissuedaguaranteeofUS$10.5million(€7million)tothebankprovidingloanfacilitiestothegroup’sassociatedentities in Turkey.



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. The29(2009:24)membersoftheBoardduringtheyearareresponsibleforplanning,directingandcontrollingtheactivitiesofthegroup. They are all members of the partnership. Those members of the Board who are members of KPMG LLP share in its profits; boththepartnershipandKPMGLLPdivideprofitsamongstmembersonlyafterthefinancialstatementshavebeenfinalisedandapprovedbymembers.OthermembersoftheBoardareentitledtoremunerationandperformancebonusesunderemploymentorservicecontractswithothersubsidiaryentities.

The estimated total salaried remuneration, performance bonuses and profit entitlement due to the key management in respect of thecurrentyeartotalled€51millionforthegroup.Theactualsalary,bonusandprofitallocatedinrespectofthepreviousyearwas€39million.Theestimatedcostofshort-termemploymentbenefitsprovidedtothekeymanagementwas€0.2millionfortheyear(2009:€0.2million)andtheestimatedcurrentservicepensioncostwas€0.6million(2009:€0.5million).

Therewerenobalancesduetoorfromkeymanagementat30September2010or2009saveinrespectofrelevantsharesofprofit (orrelatedtaxation),performancebonusesandmembers’capital.Asdiscussedinnote1,membersoftheLLPsreceivemonthlydrawings 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 allocatedprofitsinrespectoftaxationliabilitiesthatfallonindividualmembersareclassifiedas‘Amountsduetomembers’andareexpected to be paid in the short-term.

Amounts outstanding from/(to) key management are as follows:

Millions Euros2010

€m2009

€m

Amounts due from key management 3 3Amounts due to key management (19) (15)

(16) (12)

Totalmembers’capitalinvestedduringtheyearheldbykeymanagementamountedto€2.9millionat30September2010(2009:€2.5 million).

A member of key management during the year held a controlling interest in KPMG Rechtsanwaltsgesellchaft GmbH (RAG), the separate KPMGmemberfirminGermany,providinglegalservices,whichisnotcontrolledbythepartnership.ThegroupprovidesresourcesandsupportservicestoRAG,thevalueofwhichisimmaterialfromagroupperspective.

CooperatieKPMGU.A.(theCo-operative)isanentityregisteredintheNetherlands,throughwhichtheDutchpartnersprovidetheirservicestoKPMGNetherlands.TransactionswiththeCo-operativetotalled€75millionduringtheyear.€72millionwasoutstandingasamountspayabletotheCo-operativeat30September2010andastheseamountsareultimatelyduetotheDutchmembers,thebalance was classified as ‘Amounts due to members’.



27 Subsidiary and associated undertakings. At 30 September 2010 the principal subsidiaries and associates of the group were as follows:

Subsidiary undertakings Incorporated in PrincipalactivityPercent of

ordinary shares

KPMG Armenia cjsc Armenia Audit,taxandadvisoryservices 502,4

KPMGAdvisoryCVBA Belgium Advisoryservices 100KPMG LLP England Audit,taxandadvisoryservices 1001

KPMG Audit Plc England Statutoryauditsandrelatedservices 1002

KPMG United Kingdom Plc England Advisoryservices 1002

KPMG UK Limited England Employment company 1002

KPMG CIS Limited Guernsey Audit,taxandadvisoryservicesinGeorgia 1002

KPMG Limited Guernsey TaxandadvisoryservicesinRussia 1002

Queen Street Mutual Company PCC Limited Guernsey Insurance 1003

KPMG AG Wirtschaftsprufüngsgesellschaft Germany Audit,taxandadvisoryservices 100KPMG Audit LLC Kazakhstan Auditservices 1002

KPMGTaxandAdvisoryLLC Kazakhstan Taxandadvisoryservices 1002

KPMG Bishkek OOO Kyrgyzstan Audit,taxandadvisoryservices 1002

KPMGAdvisorySàrl Luxembourg Advisoryservices 1002

KPMGAuditSàrl Luxembourg Auditservices 1002

KPMGTaxSàrl Luxembourg Taxservices 502,4

KPMGAccountantsNV Netherlands Auditservices 1002

KPMGAdvisoryNV Netherlands Advisoryservices 1002

KPMGNV Netherlands Supportservices 1002

ZAO KPMG Russia Audit,taxandadvisoryservices 492,4

KPMG Auditores SL Spain Auditservices nil4

KPMG Abogados SL Spain Taxservices 100KPMG Asesores SL Spain Advisoryservices 100KPMG SA Spain Supportservices 100KPMG AG/SA Switzerland Audit,taxandadvisoryservices 1002

KPMGisveYonetimDanismanligiAS Turkey Advisoryservices 100CJSC KPMG Audit Ukraine Auditservices 302,4

KPMG Ukraine Limited Ukraine Taxandadvisoryservices 1002

Associate undertakings

KPMG Belastingconsulenten en Juridische AdviseursCVBA Belgium Taxandlegalservices 49AkisBagimsizDenetimveSMMMAS Turkey Auditandadvisoryservices nilYetkinSMMMAS Turkey Bookkeepingservices nilYetkinYMMAS Turkey Taxservices nil

1Percentageofvotingrightsheld.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 futureprofitsortoexistingretainedreserves.

4Exercisableoptionsover100%held.



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,savewherenoted.

Whilst the partnership does not own majorities in the share capital of KPMG Auditores SL (Spain), ZAO KPMG (Russia), KPMG Armeniacjsc(Armenia),CJSCKPMGAudit(Ukraine)andKPMGTaxSàrl(Luxembourg),theseentitiesareneverthelessconsideredtobesubsidiariesofthegroupunderIFRSsincetheagreementsinplacegivethepartnershiptherighttocontrol,takingaccountofexercisableoptionsandthefactthattheentitieshaveeachsigneduptotheKPMGELLPoperatingprotocol.

ThepartnershipdoesnotownanysharesinthreeofthetradingentitiesinTurkey.However,thepartnershiphascalloptionstoacquire 100% of the shares, exercisable if local legislation is changed such that the partnership may acquire the shares. Under the agreementsinplacebetweenKPMGTurkeyandELLP,thepartnershipisconsideredtohavesignificantinfluenceandtherefore,the entities are considered to be associates of the group.

ThepartnershipholdscalloptionsoverthosesharesintheBelgiantaxpracticewhichitdoesnotcurrentlyown,overtheentityprovidingauditservicesinBelgiumandoverentitiesinTurkey;noneoftheseoptionsarecurrentlyexercisableandtheyareconsideredtohaveaninsignificantfairvalue.

Summarised financial information in respect of the associates of the group is as follows:

Millions Euros2010

€m2009

€m

Assets 24 16Liabilities 21 14 Revenues 54 11 Profit 2 –

28 Events after the year end. Subsequentto30September2010thefollowingeventstookplace:

a) Luxembourg and Spain. Thegroupexerciseditsoptionsoverthe50%sharesintheKPMGLuxembourgentityprovidingtaxservicesandover100%sharesintheKPMGSpainentityprovidingauditservicesthatitdidnotpreviouslyholdatacostof€0.2million.

b) Belgium. InNovember2010,thepartnershipacquired99.9%ofthesharesinKPMG&PartnersBVBA,aBelgiancompanyprovidingauditservices,foracostof€0.7millionwhichinturnacquired99.9%ofthesharesinVanImpe,Mertens&AssociatesBV,alsoprovidingauditservicesinBelgiumfor€4.3million.

The acquisitions in Belgium had the following estimated impact on the group’s assets and liabilities:

Provisional pre-acquisition carrying amounts Millions Euros €m

Property, plant and equipment 1Intangible assets 1Tradeandotherreceivables 1Trade and other payables (3)Identifiable net assets –

Thefairvalueoftheamountstoberecognisedattheacquisitiondateinrespectoftheseassets,liabilitiesandcontingent liabilities,andthefairvalueofthecostofinvestmenthavenotyetbeenassessedandwillbedisclosedinthe2011consolidatedfinancial statements.



28 Events after the year end continued. (c) Norway and Saudi Arabia. InOctober2010themembersofELLPvotedtoacceptthemergerintothegroupoftheKPMGmemberfirmsinNorwayandtheKingdomofSaudiArabia,thepartnersinthesefirmshavingpreviouslyalsovotedinfavourofthesemergers.Atthedateofapprovaloftheseaccounts,however,therelatedagreementstogivelegaleffecttothesemergershadnotbeencompleted.

Publication name: KPMG Annual Report 2010

Publication date: December 2010

Design:C O N R A N D E S I G N G R O U P

Photography:Simon Kreitem

© 2010 KPMG Europe LLP, a UK limited liability partnership,isthelegalentitywhicheffectivelycontrols a number of the independent KPMG memberfirmsthathaveelectedtomergewithit.KPMG Europe LLP is part of the KPMG network of independent member firms affiliated with KPMG InternationalCooperative(‘KPMGInternational’),a Swiss entity. KPMG Europe LLP and KPMG Internationalprovidenoclientservices.Nomemberfirm 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 othermemberfirmvis-à-visthirdparties,nordoesKPMGInternationalhaveanysuchauthoritytoobligateorbindanymemberfirm.Allrightsreserved.

Printed in the United Kingdom.

ellp_ara_2010_final_combined_lr

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