Public reports on individual firms

The Professional Oversight Board, part of the Financial Reporting Council, has today published reports on the Audit Inspection Unit’s (AIU) inspections for 2008/9 of four audit firms:

• Baker Tilly UK Audit LLP
• BDO Stoy Hayward LLP
• Deloitte LLP
• Ernst & Young LLP

These reports, together with reports on the AIU’s 2008/9 inspections of four other major firms published on 5 November 2009, are available on the Professional Oversight Board website at http://www.frc.org.uk/pob/audit/firmreports0809.cfm

The reports cover reviews of firm-wide procedures and individual audits conducted by the AIU from April 2008 to March 2009. The individual audits reviewed related primarily to financial years ending in December 2007 and March 2008.

Overview public report

The reports on individual audit firms should be read in conjunction with “2008/9 Audit Quality Inspections: An Overview”, also published today. This report contains an overview of the findings from the AIU’s inspection work in 2008/9 at the eight major firms subject to full-scope inspections and specific commentary on the findings of the AIU’s inspection work in 2008/9 at ten other firms. In addition, it sets out the AIU’s views on some of the key challenges facing auditors in the current economic environment. This report is also available on the website at http://www.frc.org.uk/pob/audit/reports.cfm

Commenting on the reports, Dame Barbara Mills, Chair of the Oversight Board said:

“The AIU’s findings support the view that the overall quality of auditing of major public companies in the UK remains fundamentally sound. I am pleased to note in particular that individual audit teams have generally responded positively to the AIU’s findings by taking appropriate action to address them in the next year’s audit. However, we did find some areas for further improvement and I wish to emphasise the importance we attach to firms demonstrating a continued commitment to audit quality in the current economic environment, notwithstanding the increased commercial pressures they face.”

The public reports identify a number of important issues in certain areas in relation to which further improvements need to be made by the audit firms. These include behaviour regarding non-audit services, the identification of significant risks and the assessment of going concern judgments. The firms’ acceptance of the need to address appropriately the AIU’s findings is key to the continued effectiveness of its work in safeguarding and enhancing audit quality in the UK. Firms need to analyse the underlying causes of weaknesses identified by the AIU to enable them to take action which is likely to result in the behavioural changes needed on the part of their audit partners and staff.

This is the second year that AIU reports on the findings of inspections of individual audit firms have been made publicly available. In addition, reports on individual audits reviewed by the AIU have been issued to each audit firm inspected which they are expected to make available to the directors of the audit clients concerned. These various reports resulting from the AIU’s inspections form part of our programme to support the continuous improvement of audit quality in the UK.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. The Professional Oversight Board contributes to the achievement of the Financial Reporting Council’s fundamental aim of promoting confidence in corporate reporting and governance. It has four main responsibilities:
   1. a statutory obligation to oversee the regulation of auditors by the recognised accountancy bodies; 
   2. the monitoring of the quality of the auditing function in relation to economically significant entities;
   3. independent oversight of the regulation of the accountancy profession by the professional accountancy bodies;
   4. independent oversight of the regulation of the actuarial profession by the professional actuarial bodies.
3. The Professional Oversight Board is independent of the accountancy and actuarial professions. Its members have wide experience of business and the professions, the public sector, accountancy, auditing and actuarial work. The Chair is Dame Barbara Mills DBE QC.
4. Press enquiries should be directed to Paul George, Director of Auditing, on 0207 492 2340 or to Andrew Jones, AIU Director, on 0207 492 2360.