TOP ten firm Mazars – which accrues the bulk of its fee income from audit and actuarial services – has been rapped by the FRC.
The £130.9m turnover firm was criticised by the accountancy and audit profession’s watchdog following its latest audit quality inspection into five of its audits, one of which required “significant improvements in relation to the audit of provisions and related general IT controls”. Three were deemed to be of a “good standard with limited improvements” while the other audit “required improvements”.
The FRC said Mazars should pay particular attention to a number of key areas in order to enhance its audit quality and safeguard auditor independence. They include improving the firm’s capabilities, audit methodology and guidance related to the IT aspects of auditing and take action to ensure that its audit teams provide comprehensive reports to audit committees.
Mazars – which amassed £52.3m from its audit and actuarial services last year – up 8.3% from £48.3m, should also take steps to improve its approach to the audit of loan loss provisions and related IT controls in bank audits, the FRC said.
Other areas ripe for improvement include implementing more robust measures to identify and consider the appropriate response to former partners taking up appointments at audited entities. Much greater emphasis on audit quality feedback and assessment in partner and staff appraisals should also be made, the report found.
None of the five Mazars audits inspected by the FRC between January to September 2014 were included in the body’s last inspection of the firm in 2011/12, when it analysed four audits.
In four out of the five audits, the FRC “noted weaknesses in or omissions from communications with audit committees”. It found that in one audit, the audit team “did not communicate the audit plan to the audit committee prior to the commencement of the audit fieldwork, even though several months elapsed between the audit planning and the commencement of the audit fieldwork”. And despite the audit committee not meeting during that period, the FRC said the audit team “should have ensured that the required communications were made”.
It also noted that in three audits, the audit teams “failed to report certain disclosure errors, which should have been brought to the attention of the audit committee”.
In its response, Andrew Goldsworthy, Mazar’s UK head of audit, said: “We are grateful for your recognition of the prompt and positive response to the team’s previous findings and the progress made. Quality is at the top of our agenda and we take very seriously the recommendations made in this report.
“As you are aware we have developed a detailed action plan in response to these and also to our own internal monitoring findings. Many of these actions are well progressed. Independent challenge is welcome and contributes to our focus on continual improvement of our audit work.”