AQI 2018: Moore Stephens says first review ‘somewhat disappointing’
The Financial Reporting Council’s (FRC’s) first full inspection of Moore Stephens under its annual quality inspection (AQI) review process has found that the firm needs to clarify its relationship with other network firms and make better use of IT in its audit work, as well as improving its work on pension schemes
20 Jun 2018
The FRC looked at five audits, three of which were judged to require no more than limited improvements. One audit needed some improvement and the other significant improvements; the report notes the firm has subsequently resigned from one of the other two audits due to its fee proposal not being accepted by the company’s board.
According to the report, the firm needs to make further improvements to its quality control systems and arrangements, including strengthening its procedures for the review and approval of non-audit services and its response to identified ethical breaches, as well as improving its staff appraisal processes.
In the sample of staff appraisals reviewed, the FRC said it was disappointing to note that audit quality did not appear to have a direct impact on appraisal gradings, while the majority of the sample reviewed did not include specific performance objectives
The regulator’s assessment relates to Moore Stephens, which is part of Moore Stephens International (MSIL) and the largest firm within the Moore Stephens UK (MSUK) grouping. The AQI calls for the firm to set out more clearly the relationship with other network firms in its transparency report and on its website, pointing out that most users are unlikely to be aware of the difference between the firm, which only has six offices, and the remaining 31 offices within MSUK.
As regards the individual audits assessed, the FRC says the firm should ensure that IT audit considerations are assessed appropriately and computer assisted audit techniques (CAATs) applied effectively. Moore Stephens also needs to strengthen its audit approach in relation to defined benefit pension scheme assets and membership data, and improve the quality of evidence obtained from its actuaries in relation to areas of judgement.
The review identified a number of concerns relating to the work performed on defined benefit pension scheme balances, including inconsistent work performed over the valuation and ownership of scheme assets, and insufficient evidence of procedures performed in relation to the accuracy and completeness of membership data.
In its response, included in the AQI report, Moore Stephens said: ‘The firm has for some time now been embarked on an upgrade of its IT systems and this has seen an improvement in the level of management information available and its speed of access. These enhancements will allow us to interrogate information and monitor compliance with firm-wide policies and procedures more effectively.
‘In relation to revenue and IT matters, some of the root causes were very specific, such as changes to systems during the period being audited and the lack of experience of the audit team in dealing with the use of IT specialists. However, more generally we have identified a lack of communication between computer audit specialists and audit partners and staff, leading to a lack of understanding of the respective role of each with the potential to lead to omissions or inefficiency.’
Overall, Moore Stephens noted: ‘Given this was the firm’s first inspection under an annual cycle there were no real expectations against which to measure the inspection results. Whilst we are pleased with certain aspects, for instance the undoubted experience the firm has in auditing its insurance clients, other file review findings are somewhat disappointing.’
The FRC’s AQI on Moore Stephens is here.
Report by Pat Sweet