02 March 2017

FRC: Scope to improve quality control practices at audit firms

One-third of the audits sampled for the review required more than just limited improvements suggesting that the quality control procedures adopted by the firms had not been effective.

All firms have in place procedures and dedicated resources for ensuring audit quality, some of which go beyond those required by standards. However the number of audits that required more than just limited improvements shows the firms’ audit quality procedures were not sufficiently robust. To achieve faster improvements in, and greater consistency of audit quality, strong leadership and the right culture in audit firms is required.

The FRC’s Audit Quality Thematic Review identified areas of good practice including:

• Half of the firms have a dedicated board or committee that oversees all matters relating to audit quality, bringing all the elements together and ensuring audit quality has specific prominence and focus in the firm’s leadership agenda.
   
• Two firms have set out their audit quality procedures in a ‘three lines of defence’ model, helping to understand how these audit quality procedures interact together to achieve audit quality and minimise the risk of inconsistency.
   
• Initiatives to achieve consistent audit quality, identify areas for improvements and monitor the effectiveness of training in specific areas requiring improvement.
   
• Audits with a higher level of partner and director involvement had a greater likelihood of achieving a high quality outcome prior to issue of the audit report.

The FRC also identified procedures by some audit firms that should be a focus for audit quality improvements.

These include:

• The appropriate involvement of specialists in the audit with sufficient reporting of their work where this was important to achieve audit quality.
   
• That firms should consider whether there are any insights arising from their root cause analysis where their quality control procedures could be enhanced to further improve audit quality.

Full press release

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