Global audit firm networks challenged to maintain quality
The International Forum of Independent Audit Regulators (IFIAR) has challenged the six largest global audit firm networks to do more to improve the quality of their auditing and ensure greater consistency worldwide, after it found progress plan to drive up standards was too patchy
9 Mar 2018
Its sixth annual survey of inspection findings arising from its member regulators’ individual inspections of audit firms looked at two categories of activities: inspections performed on firm-wide systems of quality control and inspections of individual audit engagements.
The analysis shows that 40% of audit engagements inspected had at least one finding, compared to 42% in the 2016 survey and to 47% in the first survey capturing this percentage (2014 survey).
IFIAR says the survey results do not measure precisely, and are not the sole factor when considering developments in, firms’ progress in improving audit quality due to matters such as risk-based audit engagement selections. Nonetheless, it says the recurrence and level of findings reflected in the survey indicate a lack of consistency in the execution of high quality audits and the continuing need for improvement.
IFIAR said: ‘The survey confirms the imperative that audit firms execute on a continuous cycle of identifying areas for improvement to the systems of quality control that support their audit practices; implementing responsive actions; monitoring the impact of such actions; and leveraging the results to adjust or refine their improvement strategies.’
In 2015 IFIAR’s global audit quality working group set a goal for the six largest network firms to reduce the number of deficient audits (those with at least one finding) by at least 25%, to 29% or less, by 2019.
The 2017 survey results from these members show a 30% rate of findings at the mid-point in this measurement period.
IFIAR said: ‘Although the frequency of findings from inspections of individual audit engagements has reduced on an overall basis compared to the last survey, progress is not experienced in all jurisdictions or at the same rate.
‘Further, no definitive trends have been noted for findings arising from inspections of firm-wide systems of quality control. These results affirm IFIAR’s views that the global networks must continue in their efforts to strengthen their systems of quality control and drive consistent execution of high quality audits throughout the world.’
The two areas with the highest rate and greatest number of findings in the 2017 survey were accounting estimates, where most findings related to failure to assess the reasonableness of assumptions, including consideration of contrary or inconsistent evidence and internal control testing, and internal control testing.
For internal control testing, the most common type of finding was the failure to obtain sufficient persuasive evidence to support reliance on manual internal controls, followed by the failure to sufficiently test controls over, or the accuracy and completeness of, data or reports produced by management.
IFIAR says over recent years, revenue recognition has historically been an area with a high number and rate of findings, but levels were comparatively lower in 2017. The type of revenue recognition finding cited most frequently relates to the failure to appropriately assess and respond to the risk of fraud. With new accounting standards coming into effect, IFIAR says audit of revenue recognition will continue to be an area of focus.
Report by Pat Sweet