FRC audit quality inspection critical of GT

TOP FIVE firm Grant Thornton has been criticised by the profession’s watchdog following its latest audit quality inspection, while Crowe Clark Whitehill’s audits were described as good.

The FRC report found that of the eight GT audits assessed – one of which was a further probe of an audit reviewed in its previous inspection – three required ‘significant improvements’.

The watchdog, which inspects GT’s audits on an annual basis, said: “We were disappointed by the number of audits…requiring significant improvements and that our further review of an audit assessed as requiring significant improvements during the last inspection again fell within this category.

“In respect of two of the three audits concerned, we requested that the firm carry out further audit work to determine whether the audit opinion it issued remains appropriate. In both cases the firm has confirmed that further work has been performed and that it considers that the audit reports remain appropriate.”

The FRC identified a number of improvements to be actioned by the firm to “enhance audit quality and safeguard auditor independence”.

These include taking ‘action to embed the proper application of professional scepticism’, challenging the management of firms being audited and strengthening the firm’s quality control procedures related to the direction, supervision and review of individual audits. GT should also strengthen the link between high quality audit work and reward, the report found.

It also found that three audits undertaken by the £512m turnover firm, which amasses £135m from audit, were “performed to a good standard with limited improvements required”.

In its response, GT said: “We appreciate the insights provided by the review team members that enable us to further enhance and improve our reputation for audit quality. We are pleased to see recognition of the significant strengthening of our internal communications about audit quality and of the improvements to our training in relation to professional scepticism.

“We have already implemented new or enhanced policies and procedures designed to address other recurring issues identified in the report and the impact of these developments is beginning to be evidenced in the findings of internal quality reviews.”

Meanwhile the FRC found that its inspection of the £55m turnover Crowe Clark Whitehill – which derives £24m from audit and assurance services – was far more positive.

The FRC, which conducts its inspection of the firm every three years, found that four of the five audits reviewed “were performed to a good standard with limited improvements required”, with just one audit needing improvements.

But it highlighted a number of improvements the firm should focus on. Key among them are it should ‘pay particular attention to improving the audit of financial statement disclosures’, ‘improve evidence of the nature, timing and extent of the work performed by engagement quality control reviewers’ and that the firm has adequate resource to complete all planned quality assurance reviews on a timely basis.

In its response, the firm said: “Notwithstanding the improvements that have been noted, we are not complacent in the need to challenge constantly our audit methodology, policies, procedures and people to ensure that audit quality is maintained and enhanced.

“We have put in place an action plan to deal with the issues that the inspection has raised and the recommendations made in this report.”