The global audit inspections body has held talks with the six largest audit networks over concerns with issues that have arisen during audit inspections, relating to professional scepticism, group audits, revenue recognition, and the role of the engagement quality control reviewer.
News of the discussions between PwC, KPMG, Deloitte, Ernst & Young, Grant Thornton and BDO and the International Forum of Independent Audit Regulators (IFIAR) - which have begun happening since 2010 - come as the group released a report of a survey of issues which have arisen among members around the world in the course of their audit inspections.
The findings relate to audit firms and their public interest clients. Findings were also made in relation to clients of the large six networks who are considered systemically significant and globally significant, in response to a request by the Financial Stability Board.
The FSB, tasked with addressing issues and reviewing systems which could create yet another catastrophic global crisis - has long had auditors in its sights following outcries that external auditors gave banks a clean bill of health, not long before they crashed and in several instances needed rescuing with taxpayer funds, triggering a meltdown around the globe.
In its report IFIAR describes significant matters in which the auditor did not perform sufficient work required by auditing standards as 'findings' - and has detailed among these, concerns pertaining to revenue recognition, a lack of auditor scepticism, fair value, internal control weaknesses, and related party transactions, among others.
According to the report, which includes 22 IFIAR member inspections of audit engagements for 961 public companies at 98 audit firms; 10 members' inspections of audit engagements for 108 major financial institutions at 28 audit firms; and 23 members' inspections of 109 audit firms' internal quality control systems - have been identified repeatedly from year to year.
IFIAR said its members reported significant matters where the auditor did not perform sufficient work to meet the applicable auditing standards and other related requirements.
According to IFIAR's survey, the largest number of inspection findings in audits of public companies occurred in the areas of fair value measurements; internal control testing; and engagement quality control reviews.
Additionally, inspections of audits of major financial institutions revealed that the largest number of common inspection findings occurred in the areas of internal control testing; valuation of investments and securities; and audit of allowance for loan losses and loan impairments.
Of the10 members who provided information regarding inspections of systemically important financial institutions' and globally important financial institutions' engagements and who had findings in the eight inspection themes specified in the survey, six members cited the auditor's lack of professional scepticism as a possible cause for certain of the inspection findings.
Paul George, IFIAR chair and executive director of conduct at the Financial Reporting Council, said: 'Audit firms need to do more to improve the consistency of performance on individual audit engagements, including remediating the inspection findings and determining the possible root causes underlying these findings.
IFIAR said members will continue to follow up with audit firms to evaluate and monitor the their remedial actions in response to the inspection findings.
