Audit Inspection Report on Smaller Firms Published
News types: Publications
Published: 22 September 2010
The Professional Oversight Board, part of the Financial Reporting Council, has today published a report on the findings of the Audit Inspection Unit’s (AIU) inspections for 2009/10 of Smaller Firms (PDF).
Smaller Firms are those that audit up to ten listed or other major public interest entities within the AIU’s scope. A list of Smaller Firms, identifying those that had been subject to an AIU inspection by 31 March 2010, is set out in Appendix B of the Report. The AIU’s inspections at Smaller Firms are generally limited to a review of one individual audit engagement. Individual public reports are therefore not published on these firms.
The AIU’s key overall findings are that:
A high proportion of audits reviewed at Smaller Firms continue to require significant improvements, primarily regarding the audit evidence obtained in relation to material balances in the financial statements.
While the audits of investment trusts and similar entities undertaken by Smaller Firms reviewed by the AIU were performed to a good or acceptable standard, the more complex of the other audits reviewed, in particular audits of multi-national groups, required significant improvements in most cases.
Commenting on the reports, Dame Barbara Mills, Chair of the Oversight Board said:
“The number of Smaller Firm audits assessed by the AIU as requiring significant improvements is of concern. Smaller Firms should take more care to ensure that they undertake audits of listed and major public interest entities only if they have the level of resources and expertise appropriate to the complexity of the audit concerned.
Where our findings indicated that an audit required significant improvement, action taken by the relevant Audit Registration Committee has included placing restrictions on the firm accepting further listed and AIM audit clients. To reduce further the incidence of poor quality audit work, the FRC believes that consideration should be given to establishing specific competency requirements for auditors of listed and major public interest entities.”
Notes to Editors
- The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
- 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:
- A statutory obligation to oversee the regulation of auditors by the recognised accountancy bodies;
- The monitoring of the quality of the auditing function in relation to economically significant entities;
- Independent oversight of the regulation of the accountancy profession by the professional accountancy bodies;
- Independent oversight of the regulation of the actuarial profession by the professional actuarial bodies.
- 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.
- The monitoring units of the professional accountancy bodies in the UK which register firms to conduct audit work are responsible for monitoring the quality of audit engagements falling outside the scope of independent inspection by the AIU but within the scope of audit regulation in the UK. They also review the policies and procedures supporting audit quality at Smaller Firms. The AIU’s inspections of Smaller Firms are therefore limited to a periodic review of one or more individual audit engagements undertaken.
- The four largest audit firms are inspected annually by the AIU and reports on the findings of its 2009/10 inspections were published on 14 September 2010. Other major firms subject to full scope AIU inspections are inspected over a longer cycle of two to three years, with reports being published on each firm following the end of its inspection cycle.