'Picky' audit regulators isolating smaller firms

Audit regulators are getting picky

Fears are growing that highly technical regulators are growing apart from the practice profession at a local level, ignoring the judgments required to undertake an audit.

Separately, the Society of Professional Accountants is reporting an increase in the number of firms failing to meet with the required levels of compliance.

One senior member of the profession said this week that the ICAEW’s quality assurance directorate bodies were getting too technical in their reviews of smaller practices.

‘They [those who have passed the assurance visits] are not given positive reviews unless they are so technically competent that they speak in a technical way all the time. There’s a difference between being technically competent and knowing what the standards say and being able to apply them. But applying the rules requires judgment.

‘But they [the QAD inspectors] just talk in the standards… if you can’t reply in a similar vein, they think you’re an idiot.

‘Perhaps this is why people are no longer enjoying audits at smaller firms. But we still need a balance between small and large firms,’ he added.

The Professional Oversight Board (POB) reported a rapid decline in the number of registered audit firms in its 2007 trends report.

According to the report, the number of registered firms stood at 8,574 in 2007 - down by 23.5% from 11,211 firms in 2002.

Peter Mitchell, chairman of the SPA, warned members of the possibilities of adverse practice assurance visits. ‘We are hearing from some SPA audit-registered members that the review of their audit files
during practice assurance visits highlighted failures to meet the levels of compliance now expected. Various areas of an audit were found wanting,’ Mitchell said.

The SPA urged its members to use a training organisation, to ‘cold file review’ practices.

The ICAEW declined to comment.