IFIAR publishes report of 2016 survey inspection findings

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13 Mar, 2017

The International Forum of Independent Audit Regulators (IFIAR) has published ‘International Forum of Independent Audit Regulators – Report on 2016 survey of inspection findings’ (“the report"). IFIAR highlights that “overall, the results continue to show a lack of consistency in the execution of high-quality audits and point to the continued need to address firm-wide systems of quality control, including the critical area of auditor independence”.

IFIAR comprises 50 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 the audits of listed public interest entities (including systematically important financial institutions) and firm systems of quality control submitted by 36 of IFIAR’s members.  Findings were submitted from the most recent audit inspection reports of members that ended by June 2016. 

The report identifies that in the area of firm-wide systems of quality control there was a “general trend of decreased rates of findings”.  However the report indicates that “too many audit firms continue to have high rates of inspection findings” and that “more improvement is required”.  The quality control elements with the highest rates of inspection findings include engagement performance, independence and ethical requirements, human resources and monitoring. 

With regards to inspections of individual audit engagements, the report highlights that “inspected audits of listed public interest entities with at least one finding remained unacceptably high at 42%”.  Frequent findings were in the areas of:

  • Accounting estimates, including fair value measurement.
  • Internal control testing.
  • Audit sampling.
  • Revenue recognition. 

The report also identifies that 49 per-cent of the systematically important financial institutions audits inspected had at least one finding.  Frequent findings were in the areas of:

  • Use of experts and specialists.
  • Internal controls testing.
  • Audit of insurance contract liabilities. 

In 2015, IFIAR and the six largest network firms agreed on an initiative to improve audit quality globally by reducing the number of deficient audits (those with at least one finding) reported by its members by at least 25 per-cent by 2019.  IFIAR has indicated that it will provide an update on progress on this measure within its 2018 report. 

In May 2016 the Financial Reporting Council (FRC) published its own report of audit quality inspection work carried out by its Audit Quality Review (AQR) team.  Additionally in September 2016 the FRC published a thematic review of root cause analysis performed by audit firms relating to audit inspection findings and in March 2017 it published the results of its thematic review in respect of firms’ audit quality control procedures and other audit quality initiatives. 

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