FRC publishes the annual report on Audit Quality Inspections 2011/12

News types: Publications

Published: 13 June 2012

POB PN 73 The Professional Oversight Board, part of the Financial Reporting Council, has today published its Annual Report on Audit Quality Inspections (PDF) undertaken in 2011/12. This report contains a number of key messages including:

• A continued improvement in overall inspection results as indicated by a further reduction in the audits assessed as requiring significant improvements.
• Evidence that audit efficiency is becoming progressively more important to audit firms, as a consequence of pressure on fees and costs.
• Any effect of changes in behaviour promoted by firms to reinforce professional scepticism in their audit work has yet to be reflected in our findings.

This report is primarily directed at audit firms. It should also be of interest to audit committees, as it highlights a number of findings which may assist them in the important contribution they make to the quality of auditing. Matters relevant to audit committees include the potential effect of fee reductions on audit quality, how audit committees might encourage the application of professional scepticism and their support for auditor independence.

John Kellas, Interim Chairman commented:

“Audit makes a valuable contribution to the quality of financial reporting. Audit firms are committed to high quality audits, and demonstrate this by the considerable resources they invest in policy development and training.  The challenge remains to ensure consistent implementation of standards at all levels throughout the firms, and to achieve improvements sufficiently quickly.  We have noted a number of cases where the firms have taken action to deal with matters raised, such as scepticism, but where it is not yet clear that the initiatives have borne fruit.”
 

“At the same time, firms are under considerable competitive and economic pressure to be more efficient.  There is a consequent risk that quality will be compromised and firms, with the support of audit committees, must not allow this to happen.”

Notes to editors

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
    
2. The Professional Oversight Board has four main responsibilities: 
   a. A statutory obligation to oversee the regulation of auditors by the recognised accountancy bodies;
   b. The monitoring of the quality of the auditing function in relation to economically significant entities;
   c. Independent oversight of the regulation of the accountancy profession by the professional accountancy bodies;
   d. Independent oversight of the regulation of the actuarial profession by the professional actuarial bodies.
    
3. The Professional Oversight Board is independent of the accountancy and actuarial professions. Its members have wide experience of business and the professions, the public sector, accountancy, auditing and actuarial work. The Interim Chair is John Kellas CBE.

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