BAKER TILLY has been told it needs to do more to promote the application of professional scepticism when undertaking audit work.
According to an Audit Inspection Unit (AIU) review of six audit contracts undertaken over a two year period to 31 March 2012, issues in the sufficiency or quality of audit evidence were identified in key areas on five audits such as deferred revenue, intangible assets and asset valuations.
“These issues suggest more needs to be done to promote the appropriate exercise of professional scepticism, in particular in relation to the level of challenge of management’s explanations,” the AIU said in its report.
Other “serious” findings included the firm permitting an audit partner to join an audit client as finance director within two years of his involvement in the audit ceasing and not resigning from the audit.
A similar case had occurred in 2008. The AIU said it regards this as a serious matter and referred it to the relevant professional body.
Overall, Baker Tilly’s performance has improved since the AIU’s last report in 2008/9 when two contracts were found to be in need of significant improvement. The latest review found that one contract was performed to a good standard while the other five were performed to acceptable overall standard.
However, the performance of Baker Tilly’s substantive analytical review procedures also came in for criticism, with the reviews of certain account balances on five audits found to be inadequate.
In all cases the expectations set were “insufficiently precise” and, in four of the five cases, there was a “lack of adequate corroboration of variances identified”.
“The emphasis placed by the firm on the use of analytical review procedures to obtain audit evidence means that deficiencies in their performance are likely to have implications for the overall adequacy of the audit evidence obtained in particular areas,” the AIU said.
“We are pleased with the AIU’s assessment that none of the audits inspected required significant improvements but nonetheless we will continue to strive to achieve further improvements in the quality of all our audits,” Baker Tilly said in response to the AIU.
“We have already taken action to address many of the AIU’s findings, which we had already identified through our own quality assurance procedures, although the timing of the AIU’s file reviews was such that it would not have been possible to see the effects of these actions.”
The AIU’s latest round of audit inspections also included reviews of Crowe Clark Whitehill, Mazars and PKF.
The Middle East arm of Deloitte and Touche is being sued by a Dubai-based investment group after it failed to spot money laundering at a now defunct Lebanese bank
Smith & Williamson has named Grant Hotson as group finance director
Commissioning and preparing an asset valuation for financial reporting should involve a three way dialogue between the client, valuer & auditor
As a change-agent, internal audit has a lot going for it, but many internal audit functions need to upgrade their skills.