Anyone following the news over the last year would be forgiven for thinking that the quality of audit work undertaken across the UK was poor, given the press coverage of recent financial scandals. Away from the large corporate failures the story from ICAEW is different, with most of the audit work performed seen to be of an acceptable standard. Of course the ICAEW are still keen to see improvements:
As in previous years, a significant majority of our monitoring reviews show positive results. This is good to see, but we are not complacent. We are keen to see improvements, in particular, to reduce the number of audits that need significant improvement.
ICAEW - Inspect the Results: Audit Monitoring 2019
Every year the ICAEW publishes details summarising its findings from its monitoring of the audit work carried on by its member firms. Whilst the Financial Reporting Council is the primary regulator for the audit profession, and monitors the audit of public interest entities itself, oversight for the majority of audit work that is undertaken in the UK is the responsibility of the professional bodies. As the country’s largest accountancy body, the ICAEW’s conclusions provide a useful indication of the current state of auditing in the UK.
Overall the ICAEW’s work over the last year has shown that nearly 75% of audits were found to be of acceptable quality, slightly down on the year before. This means though that a quarter of all audits reviewed required improvement in order to meet an acceptable standard, and around 10% of audits required significant improvements to be made. Clearly the audit profession still has some distance to go if it is to address the public concerns that exist in respect of audit quality.
One issue highlighted by the report is the importance of ensuring that auditors have the requisite skills and experience when tackling specialist assignments. This is highlighted by their findings in respect of pension scheme audits, which with 13% of audits reviewed requiring significant requirements to be made, shows a significantly higher failure rate than for other forms of audit engagement.
Common audit failings
It will come as little surprise that the two biggest audit failings unearthed by the ICAEW are the lack of sufficient, appropriate audit evidence, and poor documentation of audit work. Other areas of concern relate to risk assessments being inadequate, inappropriate sampling approaches and failing to adequately address the auditor’s responsibilities with respect to fraud. Group audits continue to cause problems for auditors, as does the use of service organisations and related party transactions. The report also highlights going concern as an issue that needs to be better addressed by auditors, unsurprising given how several recent high-profile corporate failures have resulted in criticism of the work undertaken by the related auditors.
Not all of the ICAEW’s findings result from the work they do reviewing audit engagement files, they also look at firm’s policies and procedures for the audit work they conduct. In doing so they found firms that had failed to comply with the Ethical Standard or with the Audit Regulations. This can result in regulatory penalties being levied, as well as bad publicity for the firms involved. In addition the report highlights that some firms are failing to monitor the quality of their own work by not completing annual compliance reviews or undertaking cold reviews of work performed.
Copies of the ICAEW 2019 Audit Monitoring report are available online.
How Mercia can help
Mercia carry out hundreds of reviews for accountancy firms throughout the UK and Ireland each year and our experienced team can help ensure your firm remains up to date and compliant in a wide range of areas, from audit compliance reviews to hot and cold file reviews across a range of audit specialisms (eg. charities, pensions etc.).
At Mercia we use the ICAEW’s findings, as well as those of other regulators, alongside our own experience of performing file reviews for our clients to help develop the content of our audit training courses. That way we ensure that we cover issues that are of real concern to regulators and will help to ensure that you don’t fall foul of the same issues that have tripped up other firms.
For details of our peer review service and / or our upcoming courses at a range of locations across the UK see www.mercia-group.com