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Big Four fail to follow own audit policies

14 Sep 10

Professional Oversight Board reviews AIU findings, finds inconsistent practices and lack of professional scepticism

The UK’s big four audit firms are still failing to follow their own policies and procedures on too many audits, according to the Professional Oversight Board, part of the Financial Reporting Council.

The body’s annual reports on the performance of the big four – Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers – are based on the findings of the Audit Inspection Unit’s (AIU) inspections for 2009/2010, published in July.

Although the Professional Oversight Board found the firms have procedures in place to ensure audits are of an appropriate quality, the number of audits found to need “significant improvement” remained “too high”. It puts these shortcomings down to a failure to apply the firms’ policies consistently to all aspects of an audit, as well as a general lack of “professional scepticism in relation to key audit judgments”.

The report goes on to recommend firms embrace the principles underlying the Ethical Standards and, in particular, accept that non-audit services should not be provided to audit clients where appropriate safeguards do not exist.

The individual audits reviewed related primarily to financial years ending in December 2008 and March 2009. Confidential reports on these audits have been issued to each of the firms and they are expected to provide copies of these to the directors of the audit clients concerned.

Commenting on the reports, Dame Barbara Mills, chair of the Oversight Board said:
“These reports provide important information for stakeholders and, in particular, audit committees when assessing the effectiveness of their external auditors. I am therefore pleased that we have been able to publish them some two to three months earlier than in previous years.

“The reports continue to show that individual firms and audit teams have generally responded positively to the AIU’s findings by taking actions intended to address them at a firm-wide level or on individual audits. However, they identify a number of important areas in which each firm needs to take further action to improve audit quality or safeguard auditor independence. We will review the actions taken by each firm and assess their effectiveness in future inspections.”

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