Auditors must redouble their efforts to remedy inconsistent audit quality, which has become even more important in the face of the unprecedented economic turbulence brought by Covid-19, the Financial Reporting Council (FRC) has urged in its ‘Developments in Audit 2020’ report.
The FRC said audit quality remains too inconsistent in the most recent round of inspections, with 49 out of 130 audits inspected needing either improvement or significant improvement. And the worry is this inconsistent audit quality was found in audits that were completed before the impact of the Covid-19 pandemic.
Insufficient challenge of the management of audited entities was the most common audit failing identified across all inspections. While supporting evidence for forward-looking judgements can be difficult to obtain, on too many occasions the inspections found auditors only corroborated management’s assumptions, rather than challenging them.
The health and resilience of the audit market was also a key focus area in the report. The concentration of the FTSE 350 audit market, the limited choice available for these companies to obtain a high-quality audit, and the market’s vulnerability to the failure of one of the Big Four firms remain risks to market resilience.
The FRC’s Executive Director of Supervision, David Rule said: “Auditors have a key role to play in ensuring users of annual reports have reliable financial information. Despite there being examples of good auditing, auditors are still not delivering to a consistently high standard.
Covid-19 has emphasised the importance of high-quality financial reporting, alongside challenging and rigorous auditing.
During the pandemic auditing has become more challenging and audit firms need to redouble their efforts to deliver the required consistency in audit quality.”
To increase transparency further, the FRC plans to publish individual audit inspection findings starting from the completion of the current 2020/21 review cycle next July (with the consent of the audit firm and audited entity).
Check out the full report at: https://www.frc.org.uk/getattachment/58ac503e-a547-4f9e-8e52-16c7f5355586/Developments-in-Audit-2020.pdf