The Financial Reporting Council (FRC) has found that high quality auditing is easier to achieve when firm culture promotes an ethical attitude towards working in the public interest.
The report, Audit Culture Thematic Review, found that firms are investing time and effort to improve their firm-wide culture while also highlighting areas firms should address to enhance audit quality.
One common strength found by the report was that firms have well established accountability frameworks and robust processes to sanction poor quality audit work or behaviour.
It was noted that while it is important for firms to impose sanctions for poor quality audit, it is also necessary to demonstrate better recognition of positive contributions to high audit quality.
The review suggested firms need to improve on ensuring audit partners and staff appreciate that a good audit is of significant societal value and helps to underpin transparency and integrity in business.
The FRC encouraged firms to provide more extensive and transparent public reporting on their culture to enhance greater engagement with stakeholders and to build confidence and trust.
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By GlobalDataFollowing the publication of the review, the FRC plans to publicly report on the actions firms have taken in reaction to the findings of the thematic review within the next three years.
FRC executive director of audit and actuarial regulation Melanie Hind commented: “There are many factors that influence the environment within which auditors make their decisions and act. Therefore, it is vitally important that firms create an audit culture where achieving high quality work is valued and rewarded, and which emphasises the importance of ‘doing the right thing’ in the public interest.
The Institute of Chartered Accountants in England and Wales’ head of audit Nigel Sleigh-Johnson said that the review reflected the commitment of auditors to values and behaviours that deliver high quality audit but also demonstrated how the profession wants to learn from its successes and failures.
Sleigh-Johnson added: “It is important not to lose sight of the huge societal purpose of audit and the need to ensure that this is reflected in the culture of audit firms, not least to help inspire a new generation of auditors to deliver even better audits in the future."
