Grant Thornton and Mazars’ level of audit quality requires “significant improvement”, according to a new report from the The Financial Reporting Council (FRC).
It comes as the FRC published its inspection findings into the quality of major local audits in England for the financial year ended 31 March 2019.
Of the 271 major local audits in the FRC’s inspection scope, the FRC reviewed 15 audits across the seven largest audit firms, covering both the financial statement opinion and the Value for Money arrangements conclusion work.
It said that for the financial statement opinion, two audits reviewed by the FRC required “significant improvements” and seven required improvements. None of the Value for Money conclusions reviewed required more than limited improvement.
However, it added that some firms “are still not consistently achieving the necessary level of audit quality and therefore need to make further progress”.
Naming both Grant Thornton and Mazars, the FRC said the two firms should perform a “detailed Root Cause Analysis of the issues the FRC has identified and put in place an audit quality action plan across local audits to address the FRC’s findings”.
It added the key areas of concern requiring action by some audit firms were the valuation of property (including investment property), sufficiency of audit procedures over the occurrence and completeness of expenditure, the response to fraud risks, the impairment of receivables, valuation of pension assets and the effectiveness of the Engagement Quality Control review.
The FRC’s executive director of Supervision, David Rule, said: “High quality local audit is essential to providing local taxpayers and the wider public with an independent, impartial view of a local body’s financial statements and controls. The high percentage of major local audits requiring improvements is unacceptable.
“We are pleased to report that all Value for Money conclusions reviewed were assessed as requiring no more than limited improvement and we observed areas of good practice in the audit work of some firms.”
He added: “We recognise the challenges in the major local audit sector and will be working with stakeholders on the Redmond review recommendations.”
A spokesperson for Grant Thornton UK LLP said: “As a leading provider of audit and related professional services to local authorities, we remain committed to the quality and integrity of our work.
“A key determinant of the FRC’s scores relate to a specific area relating to the valuation around certain assets in March 2019 audits. The steps we have already implemented in the current audits to March 2020 deal with the FRC findings.”
They added: “Whilst this is an important part of our work, we know that given the increased pressures on financing faced by local governments, most users will be focussed on the Value for Money aspects of our work. Our strong inspection results in this area (both by the FRC and ICAEW) show our ongoing expertise in public sector audit.“
A spokesperson from Mazars also told Accountancy Today: “Mazars is committed to delivering the highest standards of audit quality, and we are disappointed that the FRC has identified that two of our Local Audits required significant improvement.
“To address these findings we have performed a root cause analysis focusing upon the matters identified by the FRC inspections. These matters, and the associated findings from our root cause analysis, have been included in our specific Local Audit quality plan to ensure they are fully addressed. The delivery of this Local Audit quality plan will be closely monitored by our Audit Board.”