PwC must improve goodwill impairment auditing

INSUFFICIENT EVIDENCE has been gathered by PwC auditors when gauging clients' goodwill impairment and revenues, according to a report by the industry watchdog.

The Audit Inspection Unit's 2010/2011 report into the firm found issues over the sufficiency of audit evidence obtained or recorded to support the related carrying values from goodwill assessments.

Two FTSE 100 audits contained errors in disclosures that went unidentified by the auditors.

Revenue issues were found with the majority of the 15 audits inspected by the AIU. In five, a lack of detailed testing, substantive analytical procedures and a response to fraud-related risks were highlighted. Seven of the 15 audits inspected were performed to a "good standard, another seven were to an "acceptable" standard while a further one required "significant improvement".

The audit that required "significant improvement" was a UK subsidiary of an overseas bank. There was insufficient audit evidence for key aspects of the audit, including reliance on management's testing of controls. The AIU also flagged concerns over the extent of audit evidence obtained or recorded in key areas such as the valuation of financial assets and provisions for loan impairments.

PwC auditors failed to formally report their findings and conclusions on a FTSE 100 audit to its audit committee.

On another FTSE 100 audit, IT consulting services were provided to the client from PwC's then newly-acquired Paragon Consulting. Paragon's work included updating the client's financial reporting system.

"It was not clear from the audit team's written assessment why this did not give rise to an unacceptable threat to the firm's independence," stated the report by AIU director Andrew Jones.

The AIU also found an audit director who had included details of his success in selling non-audit services to audit clients in his reference pack, when applying for a partner position.

In a written response to the AIU, PwC's Richard Sexton said the firm was "committed to addressing the issues that you have identified in your review and to implementing the detailed action plan that has been agreed between us".