The number of inspections may have been down, because of Covid-19, but the number of audits requiring more than limited improvements remains unacceptable, says the FRC.
It’s inspection work at the seven largest audit firms found 33% (29 out of 88) of audits didn’t meet expected standards.
And while firms have made some improvements, they are “still not consistently achieving the necessary level of audit quality”. The FRC is now calling on them all to “make further progress”.
FRC said that improvements are needed in the same three audit areas: impairment of goodwill and intangibles; revenue and contracts; and provisions, including loan loss provisions. Nearly half (46%) of all ‘failings’ have been in these areas over the last three years.
The worry for the FRC is auditors are still not challenging, or standing up to management in areas of complexity and forward-looking judgement.
The accountancy watchdog reiterated that it will take robust action for all reviews deemed to need improvements or significant improvements. To date, for the past three inspection cycles, it has referred 28 audits across all firms inspected, for consideration of possible enforcement action.
FRC’s David Rule said: “We are concerned that firms are still not consistently achieving the necessary level of audit quality. The tone from the tiop at the firms need to support a culture of challenge and to back auditors making tough decisions.”
How the 7 faired:
Grant Thornton – 9 inspections with 44% (4) requiring improvement or significant improvements. That means 5 (56%) required no more than limited improvements.
KMPG – 18 inspections with 39% (7) requiring improvement or significant improvements. That means 11 (61%) required no more than limited improvements.
BDO – 8 inspections with 37.5% (3) requiring improvement or significant improvements. That means 5 (62.5%) required no more than limited improvements.
PwC – 17 inspections with 35% (6) requiring improvement or significant improvements. That means 11 (65%) required no more than limited improvements.
EY – 15 inspections 27% (4) requiring improvements or significant improvements. That means 11 (73%) required no more than limited improvements.
Deloitte – 17 inspections with 24% (4) requiring improvements or significant improvements. That means 13 (76%) required no more than limited improvements.
Mazars – 5 inspections with 20% (1) requiring improvements or significant improvements. That means 4 (80%) required no more than limited improvements.
