UK: number of audits requiring significant improvement too high says AIU

The Professional Oversight Board, part of the Financial Reporting Council, yesterday published the Audit Inspection Unit’s Annual Report for 2009/10: see here (pdf).

The AIU reviews [a] the quality of the statutory audits of listed and other major public interest entities that fall within its scope and [b] firms’ policies and procedures supporting audit quality. The 2009/10 report provides an overview of the activities and findings of the AIU for the year ended 31 March 2010. With regard to the quality of audits by major firms the report finds:

... major firms have policies and procedures in place to support audit quality that are generally appropriate to the size of the firms and the nature of their client base. Nevertheless, improvements to these policies and procedures have been recommended at all firms. Notwithstanding the quality of firms’ policies and procedures, the number of audits assessed as requiring significant improvement at major firms (eight audits or 11% of audits reviewed at major firms excluding follow‐up reviews) is too high. Firms are therefore not always consistently applying their policies and procedures on all aspects of individual audits.

... a higher proportion of audits conducted by smaller firms require significant improvement. Six of the 11 smaller firm audits reviewed in 2009/10 (excluding follow–up reviews) were assessed as requiring significant improvement (2008/9: five of the 11 audits reviewed). Firms should not undertake audits unless they have the appropriate level of resources and expertise to ensure they are performed to an acceptable standard.

The AIU believes consideration should be given to establishing competency requirements specifically for auditors of listed and major public interest entities".