The Professional Oversight Board, part of the Financial Reporting Council, has today published the Audit Inspection Unit’s (AIU) Annual Report for 2009/10.

The report provides an overview of the activities and findings of AIU. The report is also available on the website at http://www.frc.org.uk/pob/audit/reports.cfm.

The Report emphasises:

• How firms have responded positively to the challenges arising from the economic downturn particularly in relation to the audit of going concern.
• The rigorous nature of the AIU’s inspections and their impact on audit quality.
• That firms have policies and procedures in place to support audit quality that are generally appropriate to the size of the firms and the nature of their client base.
• Despite the quality of firms’ policies and procedures, the number of audits assessed by the AIU as requiring significant improvements remains too high.
• The findings suggest that firms are not always applying:
  • their procedures consistently on all aspects of individual audits; or
  • sufficient professional scepticism in relation to key audit judgments.
• Firms must embrace the principles underlying the Ethical Standards and accept that they should not provide non-audit services to audit clients where appropriate safeguards do not exist.

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

“The AIU’s inspection activities continue to result in improvements to firms’ policies and procedures which are now generally good. While the number of good quality audits we have seen has increased, I am disappointed that the number of audits assessed as requiring significant improvement remains too high. Firms must make more effort to ensure that the improvements in their procedures are reflected in individual audit engagements. We expect firms to place greater emphasis on achieving behavioural change to ensure this is the case and we will increase our efforts to see that this occurs.”

Individual reports on the findings from the AIU’s inspections at Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers will be published in September.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
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 and Director, Professional Oversight Board on 0207 492 2340 (mobile: 07802 835057) or Jonathan Labrey, Head of Communications, on 07760 990345.