Firms put cash above quality

The auditing arms of accounting firms have had a very good time over the past
few months, with both Big Four and mid-tier firms recording double-digit audit
revenue growth.

But while audit partners have been enjoying the boom and the bonuses that
accompany growing revenue, regulators sitting on the fifth floor of Aldwych
House have been growing increasingly concerned that accountants are perhaps a
little too happy.

In its recent report on audit quality, the Financial Reporting Council’s
Professional Oversight Board expressed concerns that the hunger for profit was
taking precedence over a commitment to quality.

The POB raised these concerns after its Audit Inspection Unit found that
whether firms were providing non-audit services, remunerating their staff or
appointing audit engagement partners, audit quality was too often sacrificed in
favour of revenue growth.

Sir John Bourn, the chairman of the POB, said that, on the surface,
accounting firms were quick to trumpet the importance of audit quality in their
corporate culture, but that behind the marketing, quality was not the number one

‘At the highest level of accounting firms the emphasis is always on the
quality of audit, but if you look beneath the surface at how people are
appraised, how remuneration is taken and how promotion is worked out, quality is
not underlined at the working level. The commercial side edges out quality,’
said Bourn.

Bourn said the only way firms could address this issue was by undertaking an
overhaul of the way staff were rewarded and appraised.

The issue, however, extended far beyond managing human resources alone.

The AIU report also said that profit targets influenced how audit partners
were appointed and how the provision of non-audit services was analysed.

Bourn said a major danger to the independence of auditors was the reluctance
of firms to rotate lead audit partners every five years as they were expected
to. He said that, in many cases, the relationship between lead partner and
finance director became too ‘cosy’.

‘There is insufficient use of databases to monitor the length of
relationships between audit engagement partners and clients. Audit partners
often stay involved on audits in other roles, which undermines a clean break,’
said Bourn.

Bourn put the onus on firms to go out and act on the 50 or so recommendations
the AIU had made, but acknowledged that he was not expecting an immediate change
to the commercial culture.

‘The issue is that at any organisation of a certain size, introducing change
is difficult. It is like turning around the proverbial oil tanker,’ said Bourn.

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