AUDIT FIRMS must provide more resource and interrogate their audit processes as closely as the organisations they examine if standards are to improve and be maintained.
That’s the message from the FRC in its Audit Quality Thematic Review: Firms’ audit quality monitoring report, released this week.
The review considers the monitoring performed by nine audit firms over both the quality of completed audit engagements and the effectiveness of their overall quality control systems. Audit firms’ internal quality control procedures are designed to ensure that audit engagement teams consistently deliver high quality audits for the benefit of investors.
“Overall, firms allocate substantial resources to their monitoring of the quality of audits and this is commended,” the report finds. “However, given the importance of the firms’ quality controls in supporting the consistency of the quality of audit work performed across the firm, firms do not devote a similar level of resources to their monitoring of the firms’ quality controls.”
The regulator added that historically, most firms only identify “a relatively small proportion” of audits requiring significant improvement – “a smaller proportion than we [the FRC] find through our own reviews”.
Where it has been able to make direct comparisons, the FRC said it has found “instances where our monitoring has identified required improvements that have not been identified by the firm’s reviews or have been treated as less significant”.
The FRC aims to see 90% of FTSE 350 audits requiring no more than limited improvements as assessed by its monitoring by 2019, adding it “expects the firms’ own monitoring programmes to be as robust and challenging as our own”.
FRC executive director of conduct Paul George (pictured) said: “We welcome audit firms’ commitment to audit quality and ensuring that their quality control systems for audit are effective. Given the importance of these control systems to deliver high quality audits we would expect firms to challenge individual audit engagement teams more rigorously and apply a consistently equivalent level of resources to monitoring the effectiveness of the firms’ overall controls.”