FRC delivers verdict on audit firms

A rump of audits are still not up to scratch according to the head of the
industry watchdog who said “behavioral change” is needed to address the issues.

The Audit Inspection Unit (AIU), which sits within the Financial Reporting
Council, found an overall high standard of audit, but still serious issues which
required “significantimprovement”

Paul George, director with the Professional Oversight Board (POB), which
oversees the work of the AIU, said there serious remained issues on some audits.

“What we haven’t found is that the performance on all aspects of individual
engagements is consistent and therefore we have a rump of audits that continue
to require significant improvement,” he said

He said he still found worrying instances of audit partners attempting to be
rewarded not for the quality of their audits, but on how much money they have
brought into the firm.

“We continue to see examples were prospective partners are putting on their
appraisal form how successfully they have been at selling and identifying
opportunities for non- audit services instead of what a high quality job they
have done,” he said.

George also said the firms had not always been responsive during the
inspection process. He said the whole process could be made more efficient if
firms “were able to always respond to our comments and issues in a timely
fashion” and ceased trying to “defend the indefensible”.

“We are all looking for ways to make it more efficient, and efficiency would
help if firms were able to always respond to our comments and issues in a timely
fashion, so they can be resolved appropriately, and don’t try and defend the
indefensible,” he said.

“For our part we continue to focus on the right issues and respond equally in
a timely fashion.”

Ernst & Young came out clean with no audits found exceptionally poor.
Deloitte had two audits which required significant improvement while KPMG had
two and PwC had one.

The report comes in a year when the audit profession has been under the
spotlight over its assessment of financial assets. In the wake of the crisis
regulators became concerned auditors had displayed a “worrying lack of
scepticism” when scrutinising asset valuations, particularly of controversial
financial instruments.

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