The Big Four audit firms are under severe pressure from the audit regulator, the Financial Reporting Council, as the latest round of audit quality inspection reports show a sharp decline in standards and a particularly harsh report citing unacceptable audit practices at KPMG. Sara White, editor of Accountancy, asks whether it is time to overhaul the whole system
One in four audits failed to make the grade in the latest round of audit quality inspection reports (AQIs) into the Big Four firms, sending a shockwave through the higher echelons of the accounting profession.
Worse still around half of the audits inspected by the Financial Reporting Council for this year’s cycle, failed to achieve a top score, effectively falling below the expected standard of audit. There is a total lack of transparency around the figures as good and limited improvements are merged together into a single class, much like combining a first with a 2:1, rather a pointless exercise.
At least the firms are shown the actual grades, as are the inspected companies; but surely it would be better to be transparent. In fact, companies are encouraged to take their individual AQI reports extremely seriously and demand improvements to the quality of their audit if there are serious shortcomings. Increasingly they are questioning their auditor choices, but perhaps the most telling aspect of the AQIs was criticism of all the firms about their failure to interrogate and question management about their financial projections, cash flow assumptions and pension deficits.
