FRC: audit quality must improve

Sir John Bourn, chairman of the FRC’s Professional Oversight Board, has told
UK audit firms that they need to improve the quality of the audits they provide
to clients.

Bourn was speaking as the POB’s Audit Inspection Unit released its second
report on audit quality in the UK. The report included the results of
inspections of mid-tier firms for the first time.

Bourn said there were still serious concerns around the focus on quality at
accounting firms and the influence of providing non-audit services on auditor

The POB head said that at the highest level accounting firms all prioritised
audit quality, but that lower down the scale the focus shifted to driving up

‘When you go down into the detail and look at the way a firm lists its
objectives, appraises its staff and structures remuneration and promotions the
commercial side edges out quality,’ said Bourn.

He said that firms needed to make changes to their human resources structures
and corporate culture to address this issue.

Bourn also warned that changes needed to be made to the way firms changed
partners on large audits and monitored non-audit systems.

He said that audit partners were expected to leave audits every five years,
but that in many cases the partner remained involved on the audit in another
capacity which undermined the aim of achieving a secure break.

‘There is insufficient use of databases to monitor the length of
relationships between audit engagement partners and clients,’ Bourn said, adding
that firms did not sufficiently analyse the impact of non-audit work on their
independence either.

The third concern raised related to the documentation of audit decisions.
Bourn said that when audit judgments were made towards the end of an audit, when
partners were under time pressure, their was a lack of documentation to explain
these judgments.

‘The crucial point is that at the end of an audit when time is restricted and
judgment is made there is no documentation. It is in people’s heads. The reasons
and rationale for judgments need to be available for disclosure and for
reference on future audits,’ said Bourn.

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