Audit quality still not reaching ‘necessary high standards’, says FRC

The Financial Reporting Council (FRC) has urged a “crack down” on audit firms which have failed to improve its quality of work.

The annual report issued by FRC has found that audits are not reaching the “high standards required” to provide “confidence” in financial reporting. 

The report indicated that only 75% of the FTSE 30 audits reviewed were classed as “good” or “requiring no more than limited improvements.”

The results have decreased significantly as in 2016 FRC had a target of at least 90% of FTSE resulting in 250 auditors being assessed.

The report also shows that auditors continue to struggle most with challenging management sufficiently, especially in more judgemental areas, such as long-term contracts, goodwill impairment or the valuation of financial instruments. 

David Rule, FRC’s executive director of supervision, said: “At a time when the whole audit market faces reform, we expect audit firms to make audit quality their number-one priority and to have effective programmes of work to deliver consistently high standards.

“Inconsistent quality erodes confidence in the profession, which can lead to diminished trust in business. Stakeholders and investors rightly demand high-quality work on all audits.”

He added: “While we see many examples of high-quality audit, our inspectors are still identifying too many audits which require significant improvements. 

“Inspections show that challenge of management is a particular area of concern on which audit firms need to focus. The FRC will continue to scrutinise these efforts and hold firms to account for their delivery.”

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