Smaller Firms’ Audits Need Improvement: AIU
The audit watchdogs has discovered that a large proportion of audit reports carried out by smaller firms need significant improvement particularly those related with auditing of multinational groups.
Firms that audit up to 10 listed or other major public-interest units are termed as smaller firm and inspections by AIU are only limited to review one audit engagement. According to the Audit Inspection Unit which is a part of the Financial Reporting Council’s Professional Oversight Board, the finding has revealed that several audit reports lack in acquiring audit evidence relating to material balance in the financial statements.
Some of the audits carried out by smaller firms such as those of investment trusts and similar units were found to be of acceptable quality but as per AIU audits of more complex units and particularly those carried out on multinational units needed major improvements.
It further noted that smaller audit firms behave as group auditors in matters where they lack expertise and resources to undertake an audit within an acceptable standard. The report said that one such audit firm had to resign after it was reviewed by the AIU in 2009-10.
These smaller firms were found to be failing in totally embracing the implications of the economic recession and as such they apply inadequate professional skepticism in their work culture.
The Audit registration Committee has placed restrictions on the firms in accordance with the findings of the AIU in which it has placed doubt on the efficacy of the audit firm due to insignificant improvement. These firms have been debarred from carrying out audits of listed and AIM audit clients.
The FRC has also announced that it is also taking steps to establish certain competency requirements necessary for auditors of major and listed public-interest entities.