According to reviews undertaken by the Financial Reporting Council (FRC), the quality of audits of FTSE 350 companies in the UK is steadily improving.
Reports showed that 81% of FTSE 350 audits reviewed in 2016-17 required only limited improvements, up from 77% in 2015-16 and 70% in 2014-15. For the upcoming 2017-18 year, the FRC has set the target of 90% of FTSE 350 audits only needing limited improvements.
According to the FRC’s reviews, some of the reasons for improved audit quality include adoption of better guidance and training on the use of specialists, embedding the use of data analytics, strengthened internal monitoring arrangements and increased involvement of an Engagement Quality Control Review partner and audit technical reviewer.
While FTSE 350 audits mostly needed little improvement, this was not the case across the board –with a higher proportion of smaller firms needing more than limited improvements. Due to this, the FRC reported no overall change in audit quality, showing there is more work to be done.
In order to improve wider audit quality, the FRC made a few recommendations about areas for improvement, specifically in key areas involving judgement such as impairment reviews, asset valuations and provisions, putting in place systems to ensure compliance with ethical requirements and the design and execution of audit procedures relating to revenue recognition.
Melanie McLaren, FRC’s Executive Director for Audit and Actuarial Regulation, commented: “High quality audit underpins public trust and confidence in business. Audit firm leaderships’ focus on audit quality is a key driver of good audits and is vital to promoting a culture of continuous improvement.
While the progress made by individual firms differs, all firms are investing in audit quality and have set out further action to improve.”
The FRC recently closed an investigation into PwC’s auditing and accounting of Tesco.