The International Forum of Independent Audit Regulators (IFIAR) has released their 2016 Inspection Findings Survey revealing a decline in audit firm inspection findings compared to last year.
It is the fifth annual survey of IFIAR members’ inspections of audit firms affiliated with the top six international accounting networks. IFIAR members indicated that not only the number of the inspection findings was important but the nature of the findings as well.
Regarding firm wide systems of quality control, the decrease spanned across most categories of the findings, with the highest inspection findings being; engagement performance, 49%, independent and ethical requirements, 40%, human resources, 31%, and monitoring, 28%. The survey also collected data from inspections of individual audit engagements, such as audits of listed public interest entities, with the highest finding on accounting estimates including Fair Value Measurement, at 32%.
The higher the inspection rate findings, the greater concern there is to the IFIAR, as firm wide systems of quality control, such as auditor independence, needs to be addressed. Improving audit quality is the responsibility of audit firms, with root cause analysis helping to find areas to improve on. IFIAR stated that continued enhancement of root cause analysis should offer the route towards better audit quality, to improve international audit standards and ethics.
Janine van Diggelen, IFIAR chair said: “While our annual surveys show that audit deficiencies are declining slightly, the level of deficiency is still too high and improvement must be accelerated to ensure the declining trend is sustainable.”
The survey report included reflections on the responses from 36 of the IFIAR’s 52 members on their inspections of audit network member firms over a 12 month period up to the reports year end. The members inspected 855 audits of listed PIEs at 121 audit firms, 42% of which had at least one finding, compared to 43% last year. The results show a lack of consistency in the execution of high quality audits, since the findings of the 2015 and 2014 surveys. However, there are similarities in the nature and extent of findings compared to 2015.
“In 2015 IFIAR’s Global Audit Quality Working Group set a goal to reduce the number of deficient audits reported by our Members in the survey. The target is a minimum 25% fewer audits with at least one finding as reported by the nine members of this working group by 2019. An interim report on this initiative will be released in 2018.” Van Diggelen added.
Last year in June, due to the frustration over limited gains in audit quality, IFIAR reached an agreement with the six largest global audit firm networks (GPPC networks) to reduce negative audit inspection findings by 25% by 2019. Van Diggelen, announced last year that IFIAR "is not yet satisfied that enough has been done by the audit profession to understand and address shortfalls in audit quality."