PracticeAccounting FirmsAudit watchdogs and PwC clash on “scepticism”

Audit watchdogs and PwC clash on "scepticism"

Audit Inspection Unit gives PwC mixed review questioning whether PwC is sceptical enough on revenue recognition- a criticism which the firm strongly rejects

PwC has received a mixed report from audit watchdogs, praising the firm for
resolving issues, but also flagging up areas where improvements needed to be
made.

On the majority of work reviewed by the Audit Inspection Unit, PwC auditors
did not identiify revenue recognition as a significant risk, a move the watchdog
said was ” inconsistent with Auditing Standards.”

“More needs to be done by the firm to change the behaviour of audit teams

and to encourage them to exercise greater scepticism in this area,” the AIU
said.

However PwC shot down any suggestion that there was an issue with the firm
being too easy on clients.

“While there is passing reference to it in our report, we see no compelling
evidence to support the view that there is a problem with professional
scepticism,” said PwC’s top auditor Richard Sexton.

“In reality, scepticism is applied in real time and is a cultural and
behavioural issue. It is, therefore, very hard to evidence after the event.”

The AIU said the UK’s biggest firm has generally made good progress in acting
on findings from last year.

In particular, the firm had “put effort” into ensuring that audit team
members were not set objectives or rewarded for selling non?audit services and
into improving the linkage between audit quality and remuneration.

However, 35% of PwC staff signing off audit reports are audit directors, with
the remainder being audit partners. This proportion has increased in recent
years and compares with 25% in 2006, the AIU said.

This comes in the context of PwC identifying in its internal review that
quality was less consistent on those audits where the engagement leader was an
audit director, compared with audits led by partners.

“At the time of our inspection, the firm was considering how best to address
this issue,” the AIU said.

“We agree that any apparent inconsistency in the quality of audits is a
concern and we will review how the firm has addressed this in next year’s
inspection,” Sexton said.

Sexton welcomed the AIU’s findings but also stressed that the timing of the
Audit Inspection Unit reports meant that issues PwC had acted on may only be
observable in two years’ time.

“While we are fully committed to taking action to address your findings, the
timing of your work means that often the audits that you review have been
completed before our receipt of the prior year’s AIU report.

“As a result, it can sometimes be the case that the impact of the actions
that we
take are not measureable until the next but one inspection. As such, the
repetition of findings in two consecutive reports should not be construed as us
failing to act upon findings – it may be a matter of timing.”

“Our strategy is to continue to drive quality in everything we do, whilst
also seeking to improve the efficiency of our audit processes and tools,”
Sexton added.

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