Audit regulators globally say they aren’t satisfied with inspection results the past few years and are working with the six largest global audit networks to step up the pace of improvement.
The International Forum of Independent Audit Regulators, a global association of audit regulators that includes the Public Company Accounting Oversight Board, says it has reached an agreement with the six largest audit networks on a new initiative to achieve “a measurable reduction” in inspection findings by 2019. Those networks include Deloitte, EY, KPMG, PwC, BDO and Grant Thornton.
IFIAR’s 2015 survey of inspection findings for the six largest networks indicates 43 percent of inspected audits had at least one inspection finding, said IFIAR Chair Janine van Diggelen, who heads the audit regulator in the Netherlands. That represents a drop of four percentage points from the year before. “IFIAR is not yet satisfied that enough has been done by the audit profession to understand and address shortfalls in audit quality,” she said. “The outcomes continue to show a lack of consistency in the execution of high quality audits and highlight concerns over the robustness of the firms’ internal quality management systems.”
IFIAR’s survey compiled results from 35 member regulators and found internal control testing remains the highest area of audit deficiency findings at 23 percent, a common theme in U.S. inspection findings as well. After internal control, fair value measurement represent at 18 percent of findings globally, followed by revenue recognition at 15 percent, and risk assessments at 14 percent. The global association says inspections of firmwide systems for quality control also reveal findings that are concerning, especially in the area of engagement quality reviews, audit methodologies, and independence and ethics.
Source: The International Forum of Independent Audit Regulators
To wring more improvement out of the global audit networks, IFIAR says it will “intensify its engagement with leadership” of the six audit networks and work directly with those leaders to discuss inspection findings, recurring quality themes, and the firms’ strategies and actions to improve audit quality overall. IFIAR says it also will continue to discuss findings with audit standard setters and will intensify its outreach to audit committees to inspire them to do more to demand greater audit quality.
Lew Ferguson, a member of the PCAOB and chair of IFIAR’s Global Audit Quality Working Group, says he’s pleased that the firms have agreed to collaborate with IFIAR to reduce inspection findings. “The GAQ Working Group welcomes the challenge and plans to work intensively in our biannual discussions with the firms to support their efforts to improve audit quality, including by examining the root causes of the recurrent deficiencies and both the firms’ and the regulators’ quality monitoring programs,” he said. “It is also my hope that the efforts of the nine GAQ working group members will yield information that can be shared with the wider IFIAR membership to support their national oversight efforts.”