Accountants told to step up audit quality
BRITAIN’S big four accountants were criticised by an independent review this morning for the “disappointing” quality of their audit work.
One in ten audits produced by the major firms fell below the proper standards, the Audit Inspection Unit (AIU) said. Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers – along with smaller competitor PKF – were urged to adopt a more sceptical mentality when checking companies’ accounts and use more rigour in testing managements’ assumptions.
The watchdog raised concerns that:
• economic pressures were forcing accountants to cut resources from their audit departments;
• insufficient attention was being paid to the risk of fraud in revenue recognition at client companies;
• accountants were inclined to be too lenient when assessing a firm’s “going concern” status, particularly in terms of goodwill impairments;
• assets bought by companies prior to the downturn were not being consistently marked down;
• and accountants were increasingly tempted to sell non-audit services to audit clients.
Paul George of the Professional Oversight Board (POB), which houses the AIU, said the practice of auditing had been complicated by the financial crisis and changes to accounting methods, with more emphasis on future cashflows.
He said: “The opportunity for auditors to not get it as right as they could has increased… We need some form of behavioural change or change in the mindset of partners and staff to address that.”
Dame Barbara Mills of the POB hailed firms’ progress to date but said she was “disappointed” at the proportion of audits needing improvement.
PwC said it would continue to invest to improve the quality of its audit. E&Y said it welcomed the AIU’s report, which it said contained “some useful messages for the profession”.