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International audit regulators express concern over continued significant deficiencies in audits of public companies

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03 Mar 2015

The International Forum of Independent Audit Regulators (IFIAR) has today published ‘International Forum of Independent Audit Regulators – Report on 2014 survey of inspection findings’ (“the report"). IFIAR highlights that the recurrence of high levels of deficiencies in key areas of global public company audits demonstrates that auditors need to place greater focus on audit quality and consistency.

IFIAR comprises 51 independent audit regulators from jurisdictions in Africa, the Americas, Asia, Europe, the Middle East and Oceania.  IFIAR provides a forum for regulators to share knowledge of the audit market and share the practical experience gained from their independent audit regulatory activity.   The Financial Reporting Council (FRC) is a member.

The report summarises the key inspection findings from audits of public companies (including systematically important financial institutions) as well as from reviews of audit firms’ own quality control systems.  Findings were submitted from the most recent audit inspection reports of members that ended by July 2014.

The report identified that in inspected audits of listed public interest entities (PIEs), the areas with most deficiencies were the core audit focus areas of fair value measurement, internal controls and revenue. In particular, deficiencies relating to audit of internal controls were identified in 24% of PIEs inspected. 

For audits of systemically important financial institutions, including global banks and insurers, the survey found the highest number of deficiencies related to auditing of allowance for loan losses and loan impairments, internal control testing, and auditing the valuation of investments and securities. 

In December 2014 the FRC published a thematic review of the quality of auditing of banks and building societies and in May 2014 published its own report of audit quality inspection work carried out by its Audit Quality Review (AQR) team.  In its draft plan and budget, the FRC indicated that in 2015/16 there will continue to be a focus on bank audits, especially loan loss provisioning. 

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