2010/11 Annual Report by Professional Oversight Board ‘Better Than Last Year’s’
The annual report published by the Professional Oversight Board of the Financial Reporting Council has concluded that its audit inspection results for the fiscal year 2010-2011 are better than those of the previous year.
The Audit Inspection Unit’s (AIU) Annual Report for 2010/11 provides an overview of the activities and findings of the AIU, noting the reduction in the number of FTSE 350 audits assessed as requiring significant improvement.
Despite the reduced number of FTSE 350 audits, the report still puts at the top of main concerns the proportion of audits assessed as requiring significant improvement, particularly at smaller firms.
POB will publish later this month the individual reports on the findings from the AIU’s inspections at Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers, Grant Thornton and BDO.
The annual report noted the changes made to the AIU’s scope, which now includes all banks incorporated in the UK and the greater emphasis given by the AIU to bank audits.
The oversight board detected a number of key issues and concerns that accordingly need imporvements if firms are to achieve the consistent performance expected, including the “need for firms to exercise appropriate professional scepticism in respect of key areas of judgment.”
The board also requires firms to recognise the importance of the proper identification and assessment of threats and safeguards in maintaining auditor independence at a time when the need for more specific prohibitions is being debated.
Additionally, firms, and in particular smaller firms, are required to carefully consider whether they have the appropriate resources, expertise and involvement to undertake audits of multi-national groups to the required standard.
The auditors of UK components of international financial institutions should ensure they obtain sufficient evidence to support their statutory audit opinion of UK subsidiaries, the POB stated.
John Kellas, Interim Chairman of the Professional Oversight Board, commented on the annual report: “I am pleased to report that the AIU’s inspection activities in the current year have again found improvements in audit quality. However, further improvements are still required. The importance of audit quality needs to be continually reinforced and embedded in the culture of the firms.
“The inspection results are based on samples and we cannot say that this year’s results will be replicated (or, better, improved upon) in future. The current difficult economic climate will throw up challenges for auditors, who will need to perform consistently at their best to meet them.
“We believe that having a wider range of specific actions, such as proportionate sanctions, available to the FRC would assist in promoting audit quality.”