More needs to be done to improve the consistency of performance by auditors, an inaugural audit inspection findings survey has found.
The International Forum of Independent Audit Regulators (IFIAR) survey identifies the level of inspection activity among IFIAR members and focuses primarily on inspections of audit firms that are members of the six largest international audit firm networks.
It also responds to a request from the Financial Stability Board to provide details of findings from the inspections of audits of major financial institutions.
According to the report, members are currently noting numerous common areas or inspection themes across different jurisdictions.
For example, the results indicate the largest number of inspection findings in audits of public companies occurred in the following areas: fair value measurements; internal control testing; and engagement quality control reviews.
While inspections of audits of major financial institutions revealed the largest number of common inspection findings occurred in the following areas: internal control testing; valuation of investments and securities; and audit of allowance for loan losses and loan impairments.
The survey also covered four areas that have been discussed by IFIAR with representatives from the six largest audit firm networks since 2010: professional skepticism, group audits, revenue recognition, and the role of the engagement quality control reviewer.
The survey asked members to report findings from their inspections of audit engagements where members noted deficiencies in specific areas such as a lack of auditors’ professional scepticism was a possible cause underlying many inspection findings.
With regard to members’ inspections of the audit firms’ own firm-wide quality control systems, the survey highlights concerns with policies and procedures in place to provide the firms’ with reasonable assurance that:
– Audit engagements are performed in accordance with professional standards and legal requirements; – The firms have sufficient personnel with the technical competence, capabilities, and commitment to ethical principles necessary to perform audits; and– The firms and its personnel are in compliance with independence and ethical requirements.
However, the IFIAR did not seek information regarding instances where auditors had met the required professional standards.
Members also only reported findings that were significant matters where the auditor did not perform sufficient work to meet the applicable auditing standards and other related requirements.
IFIAR chair and executive director of conduct at the UK’s Financial Reporting Council Paul George said audit firms "need to do more to improve the consistency of performance on individual audit engagements, including remediating the inspection findings and determining the possible root causes underlying these findings".
Although the survey has been completed, the IFIAR said it will continue to inspect public company audit engagements, work closely with audit firms to improve audit quality, and work with the leadership of the six largest international audit firm networks to discuss inspection findings and the firms’ strategies and actions to improve audit quality.