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Audit Inspection Unit issues 2010 annual report

UK inspectors have found a lack of auditor scepticism and cases where auditors altered audit files after an inspection request, according to an annual review of the nine largest UK firms.

The Audit Inspection Unit (AIU) reviews the quality of the statutory audits of listed and other major public interest entities that fall within its scope, as determined each year by the Professional Oversight Board. The inspections also investigate policies and procedures supporting audit quality.

In its report, the AIU highlighted a number of deficiencies, including:

  • Firms altering audit files after the date of an AIU request, which happened on one occasion;
  • A lack of sufficient audit evidence obtained or recorded to support the judgments;
  • A lack of confirmations to confirm the existence of material assets and liabilities;
  • A lack of a formal paper to support the board’s assessment of going concern; and,
  • Auditor’s reports being signed prior to the completion of all necessary work;

The AIU also noted that audit firms had responded well to challenges arising from the global financial crisis in relation to the audit of going concern.

“While the number of good quality audits we have seen has increased, I am disappointed that the number of audits assessed as requiring significant improvement remains too high,”  the Professional Oversight Board chair Barbara Mills commented.

“Firms must make more effort to ensure that the improvements in their procedures are reflected in individual audit engagements.”

The report recommended auditors exercise greater professional scepticism when reviewing management’s judgments relating to fair values and the impairment of goodwill and other intangibles relevant to the consideration of going concern.

The watchdog also expressed concerns about one firm’s growth strategy of selling non-audit services to audit clients.

 

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