Problems found in 40 percent of audits worldwide
Forty percent of the audits inspected by audit firm regulators had at least one finding indicating a serious problem, according to a new survey.
The report, from the International Forum of Independent Audit Regulators, a group of national audit regulators including the Public Company Accounting Oversight Board in the U.S. and the Financial Reporting Council in the U.K., reported findings from 918 audits of listed public companies performed by 120 audit firms, and found that 40 percent of the audits inspected had at least one finding.
The two areas with the highest rate and greatest number of findings in the 2017 survey, which was released last week by IFIAR, were accounting estimates and internal control testing. In the area of accounting estimates, most of the findings pertained to a failure by auditors to assess the reasonableness of assumptions by management, including considering any contrary or inconsistent evidence. On the topic of internal control testing, the most common type of finding among the audit regulators was the failure to obtain sufficient persuasive evidence to support a reliance on manual internal controls. The next most common type of finding was the failure to sufficiently test controls over, or the accuracy and completeness of, data or reports produced by management.
In recent years, revenue recognition has traditionally been an area with a high number and rate of findings. In the latest survey, however, revenue recognition findings levels were comparatively lower. That could be thanks to the issuance of the revenue recognition standard by the International Accounting Standards Board and the U.S. Financial Accounting Standards Board in 2014, which took effect at the end of last year for public companies. In line with the results of the 2016 survey, the type of revenue recognition findings cited most frequently in the 2017 survey relates to the failure to appropriately assess and respond to the risk of fraud.
However, with the new accounting standards coming into effect, IFIAR cautioned that revenue recognition auditing will continue to be an area of focus for the regulators.