The Financial Reporting Council’s (FRC) inspection of the “Big Four” has revealed that accountants have failed to stop major errors in their audits, allowing mistakes in judgement and aggressive salesmanship to damage quality.
The FRC inspection came as the Competition Commission published its latest findings on the industry, which was referred last year – and it found that ten percent of the “Big Four’s” audits which were sampled fell into the lowest category with “significant concerns”, leaving the rate of improvement in auditing standards still to too low in the aftermath of the financial crisis.
According to the FRC’s assessment, auditors are failing to challenge management or to be “sceptical” enough; with the FRC’s director of Auditing, Paul George, saying: “We need to see auditors doing work diligently and challenging management.
“The actions firms take on scepticism have to start flowing through to day-to-day practice. And efficiencies can’t be made at the expense of quality.”
However, despite the issues on scepticism, the FRC reported that overall, auditors have improved their standards, especially their ethical standards, which govern the relationship between audit and non-audit work.
Mr George, added: “We do see progress. As we have moved from a largely historic cost accounting framework to one which has a significant fair value component, the level of precision in the average set of financial statements has reduced.
“The numbers may be more relevant but they become more difficult to audit and to conclude whether they are right or wrong. Therefore there is an increased need for auditor scepticism.”
He went on to say: “The auditor reporting model has not kept pace with this change in the financial reporting model.”
As an accountant, Nigel Fry, specialises within the audit sector.