Institutes defend smaller firm audits

Smaller accounting firms can handle complex audits, two prominent institutes
have insisted, despite a report highly critical of the quality of their audit
work.

A scathing report today, which found smaller accounting firms are often ill
equipped to take on their complex audits, is not indicative of practice across
the profession, according to two senior accounting figures.

ICAS and the ICAEW said the report, from the Professional Oversight Board
(POB), does not reflect smaller-firm audits across the board.

POB, which sits within the UK’s reporting regulator the Financial Reporting
Council, found eight out of eleven audits it inspected were not up to scratch,
with more than half in need of “significant improvement”.

Trevor Smith, ICAEW regional director, said the small sample size did not
reflect widespread practice in the profession.

“You have to say, it is only 11 audits that the [POB] looked at… It’s not as
if small firms can’t do this work, they can, there are some good examples,” he
said.

“What I would say is the report reinforces some of the things we do know –
complex audits are a challenge, in this day and age, for all sizes of firms.”

His remarks were echoed by ICAS executive director David Wood.

“It is a very small sample and I think firms need to look to see if these are
isolated incidences,” he said.

Wood said ethical guidelines prohibit audit firms from accepting work which
is beyond their means.

“There are two key issues, one is a geographic – do firms have the right
representation around the world to handle a client…and there is also the
expertise issue – do they have the right expertise,” he said.

Wood believes there is a case for audit committees, who appoint auditors, to
answer. He said they have to be satisfied their pick of audit firm can complete
the assignment to a high standard.

“The other perspective to this is the audit committees which have to be happy
the auditor has [enough] expertise and knowledge,” he said.

Smith said he would be willing to speak with the FRC about establishing a
“competency framework” for smaller auditors.

“That’s some thing we might be explore with the FRC. We are very open minded
at this stage,” he said.

Earlier in the day Paul George, director of the Professional Oversight Board
told Accountancy Age said there should be “additional licensing requirements or
competency requirements” for smaller firms taking on complex audits.

Further Reading:

BIS
officials asked to license small accounting firms

Watchdog
reveals scathing report of smaller audit firms