Audit firms pass the test, but...
1 Feb 10
While the Audit Inspection Unit has praised the overall quality of auditing in the UK, it has also flagged up areas of concern where further action is needed
The latest report from the Audit Inspection Unit (AIU) on the quality of auditing in the UK has given the major firms a positive report, but also highlighted areas in which they need to make improvements.
At the end of 2009, the Professional Oversight Board (POB), part of the Financial Reporting Council, published reports on the AIU’s inspections for 2008/9 of four audit firms: Baker Tilly, BDO Stoy Hayward, Deloitte and Ernst & Young.
The POB has also published 2008/09 Audit Quality Inspections: An Overview. This contains an overview of the findings from the AIU’s inspection work in 2008/09 at the eight major firms subject to full-scope inspections and specific commentary on the findings of work at ten other firms.
In addition, it sets out the AIU’s views on some of the key challenges facing auditors in the current economic environment. The report says that auditors have generally coped well with the implications of the financial crisis, but it also identifies a number of important issues in certain areas in which further improvements need to be made by the audit firms. These include:
• behaviour regarding non-audit services
• the identification of significant risks
• the assessment of going concern judgements.
One area of concern was the emphasis placed in internal communications on meeting financial objectives, and the consideration given to bringing in non-audit work in assessing the performance of audit staff.
Ethical standards do not permit firms to take account of success in selling non-audit services to audit clients in their arrangements for “appraising, promoting and remunerating audit personnel”.
The report also warns that firms “need to exercise greater care in assessing whether it is appropriate for them to provide certain non- audit services to audit clients, in identifying threats to their independence and objectivity and in assessing whether proposed safeguards are sufficient to reduce threats to an acceptable level”.
The reports, together with reports on the AIU’s 2008/09 inspections of four other major firms published on 5 November 2009, are available on the Professional Oversight Board website.
Dame Barbara Mills, chair of the Oversight Board (pictured left), said: “The AIU’s findings support the view that the overall quality of auditing of major public companies in the UK remains fundamentally sound.
“I am pleased to note that individual audit teams have generally responded positively to the AIU’s findings by taking appropriate action to address them in the next year’s audit.
“However, we did find some areas for further improvement and I wish to emphasise the importance we attach to firms demonstrating a continued commitment to audit quality in the current economic environment.”