A quarter of audits need improvement and are below expected audit standards according to ICAEW inspectors, following the release of its audit monitoring report.
In the review of audit practises of over 600 firms the ICAEW found that with 16% of audits requiring some improvement, and 10% flagged as needing “significant improvement”. This is up 8% compared to the previous years’ inspection.
Additionally only 25% were found to be of “satisfactory standard” and the remaining 51% were deemed to be acceptable.
ICAEW said audit quality “continues to be acceptable” or better on a good majority of the audits it reviews, however, it is “keen to see an improvement in the overall profile”.
It revealed the picture is similar across different types of audit client, except for pension schemes. A higher percentage of pension scheme audits required significant improvement (13%) than for other categories.
The weakest pension scheme audits were performed by firms that had “failed to recognise the specialist knowledge required” and had not invested sufficiently in training and tailored procedures. It said typically these firms have very few pension scheme audits. Firms that use specialist pension scheme teams generally produce “good quality work”.
ICAEW commenting in the report said: “As in previous years, most of our reports to the ARC reflected significant weaknesses in audit work, often combined with ineffective internal cold file review processes. These firms must submit evidence of improvement, and in some cases are restricted from taking on new audits without prior permission.
“Firms that previously needed follow up action for poor audit quality may make the required improvements in the short term but can be at risk of slipping back. We therefore go back to see these firms more often. In a number of these cases we have seen firms making significant improvements as a result of external assistance in the form of hot or cold file reviews.”