Big six firms found wanting over audit quality

The audit profession – and in particular the six largest global audit firms – stands accused of not doing enough to tackle failings in audit quality
In 2015, 43% of audits of listed public interest entities (PIEs) carried out by the six (BDO International, Deloitte Touche Tohmatsu, Ernst & Young Global, Grant Thornton International, KPMG International Cooperative and PricewaterhouseCoopers International) were found by independent inspectors to have at least one inspection finding, according to the International Forum of Independent Audit Regulators (IFIAR).
“While this is a four percentage point drop in deficient audits over last year,” said Janine van Diggelen, IFIAR chair and head, international auditing and accounting, policies and standard-setting, at the Netherlands’ Authority for the Financial Markets, “IFIAR is not yet satisfied that enough has been done by the audit profession to understand and address shortfalls in audit quality.
“The outcomes continue to show a lack of consistency in the execution of high quality audits and highlight concerns over the robustness of the firm’s internal quality management systems.”
The inspectors from 35 IFIAR members in jurisdictions around the world uncovered the highest number of audit inspection deficiencies in four key areas which are regarded as among the core building blocks of audited financial statements.
Deficiencies were found in internal control testing (23%), fair value measurement (18%), revenue recognition (15%) and risk assessment (14%).
Where the audits of banks and other systemically important financial institutions were concerned, the highest number of failings related to internal control testing, auditing of allowance for loan losses and loan impairments, auditing the valuation of investments and securities, and use of experts and specialists.
As a result of the poor results, the international audit regulators have reached agreement with the six on a global initiative to raise the levels of audit quality. From its 2016 inspections onwards, the IFIAR working group will set a measurable target for the reduction of audits with findings of at least 25%.
This, it says, is a “meaningful progress indicator” in the long-term campaign to improve audit quality.
IFIAR says it intends to intensify its engagement with the leadership of the six firms and the audit profession to discuss the inspection findings, recurring quality themes and the firms’ strategies for improving audit quality overall.
It also intends to raise the level of awareness among audit committees about audit quality problems and advise how they can contribute to upping the level of audit quality globally.
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