PracticeAuditBig Four audit inspections kick off

Big Four audit inspections kick off

The Financial Reporting Council's new audit inspection unit rolled into action this month, hopeful that its work would not be impeded by the US accounting watchdog.

The AIU is one of the newest parts of the FRC, since the council’s powers were amplified following a government report into the profession.

As a division of Sir John Bourn’s Professional Oversight Board for Accountancy (PCAOB), the unit is tasked with looking into the audits of the biggest listed companies and other public interest bodies. It will work alongside the monitoring bodies of the accountancy institutes, which will continue to investigate the work of their registered firms.

Earlier this month, the AIU started its first inspections at one of the Big Four firms and will spend the next 12 months examining the procedures of the Big Four, how these procedures are applied, and looking at the judgements made by the firms.

The nine members of the unit will also look at the audits of a quarter of the FTSE100 firms and an eighth of the FTSE250 in any 12-month period.

It will report its findings on an annual basis to POBA and the secretary of state.

However, there is still uncertainty over just how the unit will interact with the US accountancy watchdog, the PCAOB, which has the power – if it wishes – to conduct its own investigations of UK firms performing audits of US-listed clients.

The US board has introduced a sliding-scale system of reliance on the oversight and investigation processes of other nations, with those perceived to be the strongest and most robust being relied on the heaviest. The AIU expects to fall into this category.

‘We have had quite constructive dialogue with the PCAOB and we anticipate that when the board makes its decisions, we will be placed in the highest category of reliance,’ said Paul George, director of POBA.

George added that he hopes the only time the PCAOB will need to be involved in the inspection process is when the AIU asks to work with representatives of the watchdog when dealing with specific US issues.

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