In a scathing
the audit watchdog has said that significant improvement is required in the
audits conducted by small firms. Some firms have even been blocked from taking
on listed clients because of the poor quality audits.
The conclusions will come as a bitter blow to smaller firms hoping to compete
with the dominance of the big firms and the expansion of audit competition.
A report from the Audit Inspection Unit of the Financial Reporting Council
says today that a “high proportion” of audits need to improve especially in
gathering evidence to support material balances reported in financial
In stinging criticism the reports also says that where smaller firms are
involved in the audit of multi national groups significant improvements are
required in “most cases”.
The FRC is now considering whether special tests are necessary before a
smaller firm can undertake the audit of a listed company.
Dame Barbara Mills, Chair of the Oversight Board said: “The number of smaller
firm audits assessed by the AIU as requiring significant improvements is of
concern. Smaller Firms should take more care to ensure that they undertake
audits of listed and major public interest entities only if they have the level
of resources and expertise appropriate to the complexity of the audit concerned.
“Where our findings indicated that an audit required significant improvement,
action taken by the relevant Audit Registration Committee has included placing
restrictions on the firm accepting further listed and AIM audit clients. To
reduce further the incidence of poor quality audit work, the FRC believes that
consideration should be given to establishing specific competency requirements
for auditors of listed and major public interest entities.”
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