Four out of 10 audit engagements carried out by the world’s largest accounting firms last year had at least one deficiency, according to the International Forum of Independent Audit Regulators (IFIAR) in its sixth annual survey released in March. The report examined 918 audits conducted by 120 firms in 33 jurisdictions. The IFIAR membership consists of 52 independent audit regulators from around the world. Hong Kong is not a member of IFIAR.
According to IFIAR’s report, a common issue identified by member regulators was a failure among auditors to “assess the reasonableness of assumptions, including consideration of contrary or inconsistent evidence,” in other words insufficient skepticism when examining accounting estimates of companies. Another common flaw of audits were their failure to “obtain persuasive evidence to support reliance on manual internal controls,” and to “sufficiently test controls over, or the accuracy and completeness of, data or reports produced by management.”
IFIAR noted, however, that there has been an incremental improvement in audit inspection results over the years since the survey was first conducted. The percentage of audits that failed to satisfy auditing standards requirements on one or more counts stood at a high of 47 percent in 2014, and 42 percent in 2016. IFIAR also reported that while there was a downward trend overall, a closer analysis reveals that progress was inconsistent across jurisdictions.
In addition to looking at inspections of individual audit engagements, IFIAR’s survey also assessed inspections performed on firm-wide systems of quality control. In this area IFIAR highlighted inspection findings related to the independence and ethical requirements, human resources and monitoring within the firms.