FDs believe audit quality standards declining

Link: Board to oversee audit standards

This week’s Accountancy Age/Reed Accountancy Big Question found that 54% of those asked felt the quality of audits had declined noticeably, while only 30% thought standards had remained the same.

The figures show that FDs believe that auditing problems, such as those involved in PricewaterhouseCoopers’ audit of TransTec, were just the tip of the iceberg, and were a result of years of cost cutting in audit.

‘The days when the auditors used to carry out stringent checks are well gone,’ said Paresh Samat from Croner Consulting. ‘These days the auditors ask questions to the company accountant and accept their word.’

‘Audits try to avoid “dangerous” areas and have more opt-out clauses to put the onus on the management’ agreed another FD. ‘The result of this safety first attitude is to reduce the effectiveness of the audit for the shareholders and investigators.’

Many are worried that the use of audit as a means of getting into a company to sell other services has led to some of the mistakes shown recently.

‘Genuine competition appears to have driven fees down, which has of necessity led to cost cutting, either in time spent on the audit or by less senior staff being in attendance,’ said one financial director.

Despite the increase in competition, others feel that audit quality has not changed much. ‘The technical advances and the need to reduce costs has meant that audits should be targeted at the most vulnerable areas,’ said one respondent. ‘The quality of most audits has improved, but avoidable errors remain.’

‘The problem has always been the Big Four’s way of auditing,’ said another. ‘Medium and smaller firms have always undertaken more comprehensive audit work.’

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