Over a third of audits fail quality test, says IFIAR
One in three audits carried out by member firms of the six largest global audit networks are judged deficient in some way with fair value judgment frequently cited as a key problem area, finds global audit regulatory forum
17 May 2019
According to the annual survey into audit quality conducted by the International Forum of Independent Audit Regulators (IFIAR), while standards are improving, there is a lack of consistency in the execution of high quality audits and more improvement is required.
IFIAR collected information about two categories of activities: inspections performed on firm-wide systems of quality control and inspections of individual audit engagements. IFIAR members reported in the 2018 survey that 37% of audit engagements inspected had at least one finding, compared to 40% in the 2017 survey and to 47% in the first survey capturing this percentage (2014 survey).
IFIAR stated: ‘While the downward trend is encouraging, the recurrence and level of findings reflected in the survey indicate a lack of consistency in the execution of high quality audits and the need for a sustained focus on continuing improvement.’
It cautions that the survey results do not measure precisely – and are not the sole factor when considering developments in – firms’ progress in improving audit quality. However, it says the trends it identified mean audit firms should be looking to execute on an ongoing cycle of continuous improvement.
As in previous years, the highest number of adverse findings were related to accounting estimates, including fair value measurement. In 2018, 28% of deficient audits had problems in this area, followed by internal control testing (15%), adequacy of financial statement presentation and disclosure (13%), and revenue recognition (10%).
IFIAR examined audit performance at the networks of BDO International, Deloitte Touche Tohmatsu, Ernst & Young Global, Grant Thornton International, KPMG International Cooperative, and PricewaterhouseCoopers International.