FRC: Big Four risk swapping quality for quantity in audits

THE FRC has warned the Big Four they should be cautious of risking audit quality for quantity as the price war rages among them, according to individual evaluations.

As previously reported by Accountancy Age, the FRC warned competition between firms could damage audit quality as practices try to increase the volume of audits they can perform.

“This is an industry-wide challenge,” said Paul George, director of auditing at the FRC’s Audit Inspection Unit, which released the individual evaluations for each of the Big Four.

“We don’t want to see the balance between efficiency and quality fall out of sync with each other.”

An example in PwC’s report said it had launched its Audit Transformation programme to improve audit quality. However, the guides issued appeared to focus on improving efficiency by reducing audit hours. The AIU warned it should “ensure that there is no adverse impact on audit quality as a result of its initiatives to improve audit efficiency in the light of competitive pressures”.

James Chalmers, UK head of assurance at PwC, said: “Quality is at the very heart of what we do: it is essential to our reputation, important to the work that we undertake for our clients and is a fundamental strategic objective for the firm.

“Such insights, observations and recommendations are an important contribution to helping us focus on and deliver continuous quality improvement.”

Other trends featured in most of the Big Four individual assessments included better communication with audit committees of clients.

An example is featured in Deloitte’s report where two audits had a number of outstanding matters in its final report, but there was no evidence of further communication to the audit committee. In two audits, issues regarding internal controls were not communicated to the audit committee until after the approval of the financial statements.

“The firm should revise its guidance to ensure appropriate scoping for audit testing purposes and adequate communication of the scoping to audit committees,” the AIU report said.

Panos Kakoullis, managing partner of audit at Deloitte, said: “The external inspection process provides further impetus to our quality agenda and we can confirm that we have implemented a number of actions to respond to the AIU findings.”

The AIU was pleased to see its drive to increase audit scepticism into the profession has been successful and reported a healthy level in the big firms.