That's one of the key findings of the FRC's audit quality review team in its latest investigation into the Big Four's audit work.
It also found shortcomings in the firm's procedures to monitor the quality of bank, insurance and other financial services audits - 'given the importance of this sector' - this area 'should be strengthened'.
The AIU reported that 'the firm's guidance states that a negative contribution to audit quality will adversely impact remuneration' and 'unlike revenue generation, a positive contribution to audit quality is not included as one of the criteria that influences the performance rating. We believe the firm should do more to improve the link between audit quality and partner remuneration, including placing more emphasis on recognising high quality work'.
It said the firm should pay particular attention to 'ensuring its audit teams pay more attention to the audit of revenue, including the approach to substantive analytical review procedures' and 'ensuring its audit teams follow the firm's sampling methodology for substantive testing purpose and that the sample sizes adequately take into account materiality and risk'.
Deloitte earned £663m from its audit work in 2012 - up from £652m the year before. 18 were FTSE100 companies, while 64 were in the FTSE250.
Of the 14 audits reviews, 11 were performed to a good standard with limited improvements required - up from six in 2011/12, while two were of an acceptable overall standard with improvements required, compared to seven in the previous year. But it found one audit required significant improvement, mainly in relation to the audit of revenue and journal testing.
In the area of revenue, AIU inspectors identified 'weaknesses in relation to the audit of revenue on nine audits, particularly in relation to the substantive analytical procedures performed, such as the basis of the expectations set or the corroboration of explanations obtained from management'. It said further guidance and training is needed in this area.
Elsewhere, on 10 audits, substantive testing sample sizes for one or more areas of the audit were not adequately justified. This included areas of significant risk, or where no reliance was placed on internal controls.
In journal testing, inspectors found that 'the audit team only tested some of these journals and did not test those journals identified by the IT experts as demonstrating characteristics of fraud... and this was not challenged by the audit team'.
Similar weaknesses were found in loan provisions relating to residential and corporate loans; FRC cited 'insufficient challenge or testing of the information to support the basis of the provisions for some of the loans, or evidence of such'.
On a more upbeat note, the AIU found that the firm 'took action to address a number of our prior year findings and enhanced its procedures in certain areas'.
Key among these were a number of actions 'taken to improve the performance of group audits, including issuing new templates to group audit teams to assist in evidencing discussions with component audit teams, and issuing guidance on component materiality'.
It also found that the staff performance evaluation system was 'enhanced to ensure improved consideration of audit quality, including amending the standard appraisal form which now sets out objectives under three headings linked to the firm's strategy, including quality'.
The report is available HERE