KPMG is reducing its workforce as it adjusts to a changing market. (Photo by Sean Gallup/Getty Images)Getty ImagesKPMG is shaking up its practice with announcements that it is laying off 4% of its staff in its US advisory business, shuttering its federal audit practice and cutting 10% of its U.S. audit partners. Before the cuts, the company operated across 142 countries with roughly 276,000 employees. Some parts of KPMG’s business, such as consulting on artificial intelligence and cybersecurity, are still growing. But others, including consulting on regulations, are in decline and a soft economy means the firm has had less organic attrition than it expected. About KPMGThe firm was founded in 1987 when Klynveld Main Goerdeler (KMG) and Peat Marwick International (PMI) came together in what was the first multi-billion-dollar merger in the accounting industry. The name stands for the four principal founding members: Piet Klynveld, William Barclay Peat, James Marwick, and Reinhard Goerdeler. Today, it is considered the smallest of the Big Four accounting firms alongside Deloitte, EY, and PwC.The company reported combined income for all KPMG member firms worldwide for the 2025 fiscal year at $39.8 billion. The U.S. firm (KPMG LLP) typically accounts for a large portion of the Americas region, which reported $15.9 billion in revenue this year.KPMG’s core business structure is focused on three areas: audit and assurance, tax and legal, and advisory.The audit and assurance sector provides a check on a company's financial health. Basically, auditors examine the financial statements of various companies to verify their accuracy and provide an independent opinion on whether the books fairly represent the organization's financial position. U.S. public companies have been required by law to have their financial statements independently audited each year since 1934 (as part of the Securities Exchange Act). Private companies generally have no such requirement — their finances are typically only scrutinized by banks or private investors. KPMG says it is growing faster in private-company audits. And last month, the company ramped up its private market strategy by introducing KPMG Private, an AI-enabled offering intended to support investors as more capital moves into private markets. The tax and legal arena does exactly what it sounds like: advise companies on how to stay compliant with tax laws while managing their tax burdens. In countries outside the US, this also includes legal services, offering corporate law advice. In most US states, non-lawyers cannot own a law firm. However, Arizona changed its rules in 2020 to allow "Alternative Business Structures" (ABS). KPMG used this to launch KPMG Law US as a subsidiary in 2025 (the company, however, is strictly prohibited from providing legal services to any company it also audits).Advisory services—which are KPMG’s biggest moneymaker—help businesses change, grow, or fix problems. This includes operational work, such as helping companies buy or sell businesses, as well as risk management and mitigation.Cuts To Advisory StaffKPMG shocked many in the tax profession when it announced cuts to its advisory business. Advisory services are widely viewed as a source of growth for accounting firms, with many focusing more on advisory than on any other part of their business, including tax compliance.KPMG divides its services into transaction/strategy and consulting. None of the cuts will impact its transaction and strategy teams. And while the company is seeing robust growth in consulting related to the adoption of artificial intelligence (AI), cybersecurity, and forensics, the market has gone soft on some sectors, including regulatory risk advisory, customer operations, and financial services. Why the slowdown in these areas? The Trump administration has made deregulation a priority. The lack of regulations means there is less need for consulting on those services—this is particularly true for customers in the banking and financial services sectors.So what would happen if the administration switched gears, or was replaced by an administration with a new focus on regulations? The company would be agile and strategic, a person familiar with the matter told Forbes, and would make a new decision based on those changes.For now, the downturn in demand coincided with lower-than-expected attrition—the firm had gone on something of a hiring spree, like many companies, during the pandemic. As a result, the firm is now cutting about 4% of its advisory workforce, or about 400 people. About half of the cuts were performance-related. No partners are affected.Audit Partners Are Also Being CutKPMG is also cutting its US audit business. The firm is working to cut about 10% of US audit partners—that’s about 100 partners.Some of those partners were already on their way out, according to a person familiar with the matter. The firm recognized it had more partners than it needed and had previously introduced an early-retirement program to incentivize exits. This latest push was an attempt to accelerate that effort.Cuts in the partner ranks are far less common than staff layoffs in the professional services industry. Firms generally have to buy out the partner’s equity and make an additional payment based on the person’s seniority and tenure when they leave. The affected partners will receive financial packages and placement support, the firm said.KPMG Loses U.S. Army ContractThere had been rumblings that the audit cuts stemmed from the firm losing its largest federal audit client: the U.S. Army. KPMG had audited the U.S. Army for almost a decade, working under a $60 million annual contract. Now, the Pentagon is switching gears and reorganizing its financial reporting, including reducing the number of audits.In a video posted on X, Secretary Pete Hegseth called the Department’s financial reporting “a disaster,” saying that “the era of excuses is over.” Hegseth announced that the Office of Inspector General would work to bring in a “world-class accounting firm” to handle the audits moving forward.The Department also announced on its website that “a refined approach is underway to support the Department's efforts to achieve a clean audit opinion by 2028.” That date isn’t random. The Fiscal Year 2024 National Defense Authorization Act (NDAA) established a statutory deadline of December 31, 2028, for the Department to achieve an "unmodified audit opinion”—in other words, a clean, independent financial audit. Although the Pentagon accounts for around 50% of the country’s total discretionary spending, the Department has never received a "clean" audit and has failed seven financial audits in recent years. It is the only one of 24 federal agencies that has not passed an unmodified financial audit since the Chief Financial Officers Act of 1990.The Army wasn’t the firm’s only federal audit client. Current clients include the Departments of Justice, Labor, Transportation, and Energy, as well as the Treasury. Those audit contracts will all be shuttered by 2030, a move that KPMG says has been in the works for some time. Instead, the firm will focus on providing advisory services to the federal government.Some staff assigned to those contracts have already been reassigned, while others will begin shifting to new jobs by the time the contracts wrap up.KPMG’s Audit BusinessKPMG isn’t worried about what this means for the firm—it says that its private and public audit businesses remain strong.A recent Ideagen Audit Analytics report found that KPMG covers just over one in ten SEC-registered companies — a slightly smaller share than its Big Four peers. Deloitte holds the top spot with 15% of the market, Ernst & Young is in second with 13%, PwC is third with 12%, and KPMG has grown its share to 11%, with 639 clients.The firm’s partners and managing directors in the U.S. audit practice total about 1,400. Managing directors aren’t subject to the latest cuts. (A partner holds an ownership stake in the firm, sharing in its profits and having a say in governance, while a managing director is a senior employee who earns a salary and bonus but has no ownership rights.)KPMG Is Still GrowingDespite the changes, the company says all three businesses are growing.Last year, KPMG ranked highest among the Big Four firms in terms of net client market cap gained—with 42 new engagements and 22 departures, the net gain was $135.6 billion. KPMG also led all auditors in net audit fees gained, with $78.1 million.