News May 2016 Audit quality review reports published by FRC

Audit quality review reports published by FRC

19 May 2016

Reports on audit quality reviews of the six largest audit firms have been published today by the Financial Reporting Council (FRC).The reports set out the principal findings arising from the 2015/16 reviews of BDO, Deloitte, EY, Grant Thornton, KPMG and PwC.

The FRC has responded to feedback, from audit committee chairs and others, as to how the content of its reports on individual firms could be further developed to provide more useful information. The reports focus on the key findings of our reviews, why they matter and the actions the firms are taking to address them. The key findings reported cover matters arising from the FRC’s reviews of both individual audits and each firm’s policies and procedures to support and promote audit quality, with the balance of findings in these two areas differing significantly between the six firms. 

The reports also set out some examples of good practice identified at each firm that contributed to audit quality.

Melanie McLaren, FRC’s Executive Director for Audit, said:
“This year’s reports on our reviews of individual audit firms reflect the FRC’s focus on promoting continuous improvement in audit quality.
For the first time, we asked the firms to carry out a root cause analysis into each of our key findings before developing proposed actions and discussing these with us. The firms responded positively to this request and engaged in a constructive dialogue with us on the outcome of their work and how this had informed the actions they intend to take. 
We are pleased that the firms have recognised the opportunity to demonstrate their commitment to audit quality.
We will be reviewing the implementation of firms’ actions and the extent to which they are effective in practice in enhancing audit quality.” 
Later in 2016 the FRC intends to issue, in view of its forthcoming role as the UK’s competent authority for audit, its first report monitoring and assessing developments in UK audit quality encompassing developments in standards and policy, professional oversight, audit quality review and enforcement.
Notes to editors:
  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
  2. The Audit Quality Review (AQR) team monitors the quality of the audit work of those UK audit firms that audit Public Interest and large AIM entities. The overall objective of our work is to monitor and promote continuous improvements in audit quality in the UK.

    All UK audit firms that undertake Public Interest and large AIM entity audits are subject to AQR inspections in respect of this audit work. The professional bodies have the responsibility for monitoring all other audit work. The frequency of AQR inspections varies with larger firms inspected annually while other firms are generally inspected once every three years. In certain cases the inspection cycle can be extended to six years.

    Audits of entities incorporated in Jersey, Guernsey or the Isle of Man whose securities are traded on a regulated market in the European Economic Area are also within the scope of our work under separate arrangements agreed with the regulatory bodies in the Crown Dependencies. This includes the audits of a number of major companies which are listed in the UK and included in the FTSE 100 or FTSE 250 indices. Crown Dependency companies listed on AIM are however not included within this inspection scope.