Grant Thornton has been warned to make sure its expansion plans do not have an adverse impact on audit quality in the Financial Reporting Council's (FRC's) latest inspection report on the firm.
The audit quality inspection report says that GT's overall strategy for the next three years targets growth. While it notes that 'emphasis is given to the quality of the firm's work as a means of achieving that growth and messages relating to audit quality are communicated to partners and staff regularly,' the regulator says there is a risk that audit quality may be adversely affected as a result.
The FRC also says that the number of issues identified by internal and external quality reviews remains high and that GT should strengthen quality control procedures further to address this.
For its inspection, the FRC reviewed 10 audits, of which five were judged good and two assessed as acceptable.
Three audits required significant improvement in relation to the sufficiency of audit evidence obtained in key areas; one in respect of financial assets and intangibles and a second in respect of the carrying value of fixed asset.
On the third audit there was a significant loss of audit work papers, caused by a computer crash. While the audit file was rebuilt from earlier backups and other information sources, the FRC said these procedures were inadequate and some audit evidence was missing in significant areas. It also found that the audit team had failed to comply with the firm's policy for the backing up of electronic audit files which would have prevented the incident from occurring.
On six of the audits, the FRC had concerns regarding the level of professional scepticism applied in key audit areas. These included inadequate questioning of additions to intangible assets, failure to address the impact of public spending reviews in relation to work on going concern, and insufficient challenging of management over the valuation of fixed assets and the treatment of discounts.
The FRC was satisfied that GT had taken the necessary steps to achieve improvements in response to findings from previous inspections, including the development and delivery of new ethics training.
It reported that 'the firm places considerable emphasis on its overall systems of quality control and, in most areas, has appropriate policies and procedures in place for its size and the nature of its client base.'
Areas for improvement include clarifying the firm's methodology around how audit teams identify significant risk. The FRC also wants GT to make absolutely clear to partners and staff that the selling of non-audit services to audited entities will not be taken into account in appraisals or promotion applications.
Mark Cardiff, GT's head of audit, said the firm was 'very pleased' with the increasing proportion of reviewed engagement files that were graded as good and had 'already put in place a plan to address the additional findings raised on this inspection.'
'The achievement of our ambitions for the next three years is critical to provide the competition and choice that the global and UK audit markets require, as highlighted by the recent Competition Commission findings. The cornerstone of our ambition is based on the quality of our audit service, and providing real insights to our clients, based on reason and instinct,' Cardiff said.
