The Financial Reporting Council has issued the annual audit quality inspection reports for the Big Four audit firms, and mid-tiers, BDO and Grant Thornton, but surprisingly has not issued any overview of current performance or quality
In a first for the regulator, it has failed to provide any analysis of its view of the overall quality of this year’s audit inspections. It has released the six individual reports on the respective audit firms without a comprehensive summary highlighting the level of improvements and weaknesses in audit standards across the main UK listed market.
The firm reports are on average 17 pages in length but require in-depth analysis to draw out the critical current trends. This is surprising considering the level of scrutiny over auditor independence and capability, in the run-up to the introduction of the EU Audit Regulations and Directive in the UK which will overhaul rules on tendering, audit engagement and the role of audit committees.
KPMG was singled out over two audits which required 'significant improvements' and the inspection report recommended a review of the firm's audit training to raise standards. The other firms were also flagged over quality of audit, although none received the lowest ranking. Three of EY's audits required improvements, while 14 audits were good with limited improvements required. Likewise, Deloitte was criticised over four audits where improvements were required, although 18 of its audits were still below standard.
This year's reports are also substantially different from last year as a result of feedback from stakeholders about the effectiveness of the audit inspection process.
In a change of direction, the FRC plans to publish a limited overview report at the end of June setting out its objectives and targets, with some element of inspection review.
An FRC spokesperson told Accountancy: ‘The summary report of audit quality inspections will not be published this year. Instead, we are introducing a series of state of the nation reports.
'The overall trends will still be a part of it, but it won’t have the same or all the background data as in the old report.
'But the key trend data will be there and we have set a target for 2016-19 that the percentage of audits categorised as requiring improvement from 70% to 90%, so that in future we only accept that 10% of audits require significant improvement’.
This year firms have been given the chance to set out how they have dealt with weaknesses in their audits, particularly where the FRC has highlighted poor practice.
The FRC plans to issue its new 'state of the nation' report on 30 June.
The detailed 2015/16 FRC audit quality inspection reports are available here