As a Recognised Supervisory Body for audit, ICAEW monitors the work of firms of all sizes, from sole practitioners to the Big Four, and reports on its findings annually. Most visits conclude without the need for further regulatory action.
ICAEW conducted reviews at 538 firms in the 15 months to March 2021, and considered 76% of audits to be satisfactory or generally acceptable.
The proportion of audits in the lowest category, where significant improvement is required, declined from 8% in 2019 to 7% in 2020/21, while 17% required improvement. This did not necessarily mean that the audit opinion was incorrect, or financial statements were misstated.
Areas for improvement
The report identified three areas where audits could be improved: evidence; documentation; and identification and assessment of risk. In some cases, there was not enough evidence shown to support the conclusions of auditors, nor enough documentation to adequately explain complex information. Some firms did not consider enough whether circumstances could arise which would present a risk to audit quality.
ICAEW conducts root cause analysis with firms to boost quality in cases where reviewers concluded audits needed to improve. The report includes case studies to help firms learn from this best practice.
Rama Krishnan, Chair of ICAEW’s Audit Registration Committee, said:
“ICAEW quality assurance reviewers continued to see many examples of robust audit work and with 76% of audits satisfactory or generally acceptable, we’re pleased that quality remained consistent in a climate where auditors had to find new and innovative ways of working because of the pandemic.
“But there is still work to be done for audit quality to increase in some cases, and we want to see firms focus on professional scepticism and their use of documentation to drive improvement.
“It’s vital that the public can trust in the quality of audit and we will continue to work with all the firms to drive improvement where needed, so all audits meet the very highest standards.” ICAEW is moving its review year to align with that of the Financial Reporting Conduct, hence the 15-month span of this report.