While encouraged by the trend in audit inspection results, global audit regulators report they are still seeing levels of audit deficiency that command continued focus on improvement.
According to a report by the International Forum of Independent Audit Regulators, 37 percent of audits inspected globally across the six largest network firms contained at least one finding by regulators, down from 40 percent in 2017. The IFIAR report is based on a survey of member regulators from 45 countries, including the Public Company Accounting Oversight Board in the United States, who share their inspection findings for the six largest network firms with IFIAR.
“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 IFIAR reported. The survey found 47 percent of audits contained at least one negative finding in 2014, the first year IFIAR collected and shared the data, and that figure inched down to 43 percent in 2015 and 42 percent in 2016.
In the United States, the PCAOB has not yet published the results of any of its 2018 inspections at the six largest firms. For 2017, the board so far has reported it found problems in 20 percent of audits it inspected at Deloitte, 18 percent at Grant Thornton, 24 percent at PwC, and 50 percent at KPMG. The board has not yet published its 2017 reports for EY or BDO USA.
The 2018 IFIAR report compiles data on not only inspection findings, but also on how regulators report and share inspection findings, which often is governed by laws and regulations in individual jurisdictions. The data show audit committees in only eight jurisdictions receive some kind of formal notification of audit inspection findings; in five countries, it is the audit firm that provides written findings to audit committees.
In only two jurisdictions, regulators provide written results to audit committees, the IFIAR report notes. The PCAOB has indicated it plans to increase its outreach to audit committees.
The Financial Stability Board recently convened a roundtable specifically to address concerns about external audit quality globally. The two-day event focused on how to improve international financial stability to boost public confidence in auditors and the quality of audits, especially for systemically important financial institutions.