IFIAR finds 37% of audits still failing quality test

The International Forum of Independent Audit regulators (IFIAR) has found that the number of deficient audits performed by the six largest global audit firm networks was 37% in 2018. The IFIAR has released a report on the results of its seventh annual survey of inspection findings arising from its member regulators’ individual inspections of audit firms affiliated with the six largest global audit firm networks. IFIAR collected information about two categories of activities: inspections performed on firm-wide systems of quality control and inspections of individual audit engagements. Its members reported in the 2018 survey that 37% of audit engagements inspected had at least one finding, compared to 40% in the 2017 survey and to 47% in the first survey capturing this percentage (2014 survey). IFIAR said that while the downward trend is “encouraging”, the recurrence and level of findings reflected in the survey indicate a “lack of consistency in the execution of high quality audits and the need for a sustained focus on continuing improvement”. The survey also found the issue firms make the mistakes on most relate to accounting estimates, including fair value measurement. In 2018, 28% of deficient audits had failed in this area. The next most problematic areas are internal control testing (15%) and adequacy of financial statement presentation and disclosure (13%). However the IFIAR warned that the survey results do not measure precisely – and are not the sole factor when considering developments in – firms’ progress in improving audit quality. It added that a “comprehensive evaluation” of audit quality would involve consideration of various factors beyond numerical information about deficiencies identified and reported over the course of an inspection. While responsibility for improving audit quality rests with audit firms, the IFIAR “seeks to influence progress towards consistent, high quality audits globally through various activities”. IFIAR added it encourages audit firms to execute on an ongoing cycle of continuous improvement.