The Professional Oversight Board, part of the Financial Reporting Council, has published the Audit Inspection Unit’s (AIU) Annual Report for 2010/11.
The report, which provides an overview of the activities and findings of the AIU, notes:
- That its inspection results for 2010/11 are as good as, or even slightly better than, those of the last year. Of particular note is the reduction in the number of FTSE 350 audits assessed as requiring significant improvement.
- Notwithstanding this the proportion of audits assessed as requiring significant improvement, particularly at smaller firms, remains of concern.
- Changes to the AIU’s scope which now includes all banks incorporated in the UK and the greater emphasis given by the AIU to bank audits.
There are a number of key issues and concerns where improvements are required if firms are to achieve the consistent performance expected. These include:
- The need for firms to exercise appropriate professional scepticism in respect of key areas of judgment.
- Firms must recognise the importance of the proper identification and assessment of threats and safeguards in maintaining auditor independence at a time when the need for more specific prohibitions is being debated.
- Firms, and in particular smaller firms, should carefully consider whether they have the appropriate resources, expertise and involvement to undertake audits of multi-national groups to the required standard.
- The auditors of UK components of international financial institutions should ensure they obtain sufficient evidence to support their statutory audit opinion of UK subsidiaries.
Commenting on the report, John Kellas, Interim Chairman of the Professional Oversight Board said:
“I am pleased to report that the AIU’s inspection activities in the current year have again found improvements in audit quality. However, further improvements are still required. The importance of audit quality needs to be continually reinforced and embedded in the culture of the firms.
The inspection results are based on samples and we cannot say that this year’s results will be replicated (or, better, improved upon) in future. The current difficult economic climate will throw up challenges for auditors, who will need to perform consistently at their best to meet them.
We believe that having a wider range of specific actions, such as proportionate sanctions, available to the FRC would assist in promoting audit quality.”
The report is available on the website at
http://www.frc.org.uk/pob/audit/reports.cfm
