The International Forum of Independent Audit Regulators has released a global survey of audit inspection findings, identifying some of the most common problems that regulators have identified at auditing firms around the world during their inspections.
The report is the first global survey tying together the findings of the U.S. Public Company Accounting Oversight Board with its counterparts in other parts of the world. The survey was designed to identify the level of inspection activity among IFIAR members and common findings from their inspections of audits of public companies. The survey also responds to a request from the Financial Stability Board to provide details of findings from the inspections of audits of major financial institutions.
The survey asked members to report findings from their inspections of audit engagements where they had noted deficiencies in specific areas, but did not seek information on instances where the auditors had met the required professional standards. The regulators reported findings that were significant matters where the auditor did not perform sufficient work to meet the applicable auditing standards and other related requirements.
The survey identified some common findings in a number of areas. The largest number of inspection findings in audits of public companies occurred in the areas of fair value measurements, internal control testing, and engagement quality control reviews.
In addition, inspections of audits of major financial institutions revealed that the largest number of common inspection findings occurred in the areas of internal control testing, valuation of investments and securities, and audit of allowance for loan losses and loan impairments.
The survey results also include four areas that have been discussed by IFIAR with representatives from the six largest audit firm networks since 2010: professional skepticism, group audits, revenue recognition, and the role of the engagement quality control reviewer.
“Audit firms need to do more to improve the consistency of performance on individual audit engagements, including remediating the inspection findings and determining the possible root causes underlying these findings,” said IFIAR chair Paul George, who is also executive director of conduct at the U.K.’s Financial Reporting Council.
IFIAR members plan to continue to inspect the public company audit engagements, including major financial institutions, and work closely with the audit firms in their jurisdictions to improve audit quality. Members also intend to continue to follow-up with the audit firms to evaluate and monitor the audit firms’ remedial actions in response to their respective inspection findings. In addition, IFIAR will continue to work with the leadership of the six largest international audit firm networks to discuss inspection findings and the firms’ strategies and actions to improve audit quality.
“IFIAR’s goal is to conduct periodic surveys to measure changes in these findings with the goal of allowing members to identify those areas that need improvement and to share experiences about what practices seem to be most effective in reducing audit deficiencies,” said IFIAR vice-chair and PCAOB board member Lewis Ferguson.
The survey focused primarily on IFIAR members’ inspections of audit firms that are members of the six largest international audit firm networks and includes issues identified by 22 IFIAR members’ inspections of audit engagements for 961 public companies at 98 audit firms; 10 members’ inspections of audit engagements for 108 major financial institutions at 28 audit firms; and 23 members’ inspections of 109 audit firms’ internal quality control systems.