Mazars should give audit quality a higher priority in its staff and partner appraisals and work on improving its auditing of banks, according to the findings of the latest audit quality inspection (AQI) by the Financial Reporting Council (FRC) which was largely positive about the firm’s approach
The AQI looked at five audits in total, of which four required no more than limited improvements and one of which was judged to require some improvement. This compares with the previous year’s findings when one audit out of the five required significant improvements and a second needed some improvement.
While the FRC noted ‘there are a number of findings that the firm needs to address, some of which are similar to findings from our last inspection in 2014/15’, the regulator said Mazars had made progress in revising its policies and procedures to address the new requirements of the revised auditing and ethical standards.
The FRC highlighted the need for Mazars to require specific performance objectives for audit quality in partner and staff appraisals. As regards individual audit reviews, it said the firm should continue to improve the audit of banks’ loan loss provisions and IT general controls, and look to improve the evidence of appropriate challenge in areas of judgement, such as impairment.
On one bank audit, further challenge was needed in relation to the collective impairment provision and further evidence to support the audit team’s conclusions concerning certain non-performing loans. On the other audit, there was insufficient evidence of robust challenge of management’s assessment of certain inputs used in assessing specific loan loss provisions. The testing of certain IT general controls required improvement on both bank audits, in particular controls relating to change management and logical access.
In its response published in the AQI report, Mazars said: ‘We are already underway in our actions to address those areas identified as needing improvement or systems that need strengthening. These include changes to our processes for performance reviews to ensure audit quality is more clearly given greater priority and a continuing development in the quality of our bank audits.
‘In addition, we have invested in our audit training so that we deliver training and feedback to smaller groups to encourage greater engagement and we have also recruited an audit quality manager with a full-time role in quality monitoring so we can better assess the audit quality on our audit files.’
The FRC identified examples of good practice, including changes to the leadership structure which it said better supports the firm to deliver high audit quality, and the fact that Mazars has voluntarily adopted the FRC’s revised audit firm governance code.
FRC AQI report on Mazars is here.
Report by Pat Sweet
