Audit quality trends
Nick Reynolds, ICAEW Head of Audit within the Quality Assurance Department, opened the session with a review of audit quality data from recent years. The proportion of audits rated as “good” or “generally acceptable” declined slightly to 67% in 2024, down from 71% in both 2023 and 2022. While this downward trend is notable, Nick emphasised that the figures reflect varying firm populations each year and that even audits requiring improvement may contain strong elements of good practice.
He also highlighted the importance of ICAEW’s training film, Crossing the Line, which has been widely praised for its realism and relevance to audit teams. The film has been produced as a training resource for auditors, exploring ethical dilemmas and key audit themes in a real-world setting.
Common weaknesses in audit files
Neil Lawrinson, a reviewer in Quality Assurance Department, identified six recurring areas of weakness in audit files:
- Understanding and risk assessment
Many firms struggle to document their understanding of IT systems and risk assessments under ISA 315 (Revised). Smaller firms often underestimate the complexity of systems like SAP or overlook feeder systems such as booking platforms. - Fraud risk consideration
Firms frequently fail to adequately address fraud risks, particularly management override and revenue recognition. Neil stressed that the management override risk can never be rebutted and the revenue recognition risk only rebutted with clear justification. He also stressed that audit teams must demonstrate professional scepticism. - Estimates and judgements
Auditors often overlook key estimates such as long-term contract revenue or fair value assessments. Judgements, such as whether to recognise a provision or classify revenue as principal or agent, are also sometimes not clearly considered. - Experts and service organisations
Firms must assess the appropriateness of management-appointed experts and not rely solely on their reports. Similarly, service organisations like payroll providers should be considered during planning, even if reliance on their controls is not intended. - Substantive analytical review
Many firms confuse substantive analytical procedures with final analytical review. Neil advised that expectations must be clearly defined, tolerable differences set, and explanations corroborated with evidence. - Sampling application
Issues persist with unjustified sample sizes and flawed selection methods. Some firms rely on outdated caps or exclude material subsets of data, undermining the representativeness of their samples.
Whole-firm observations
The webinar also addressed broader firm-level issues, particularly around ISQM 1 implementation. Where firms have embraced the standard, they have seen tangible benefits. Effective root cause analysis and remediation planning were highlighted as key differentiators in audit quality outcomes.
Ethical and eligibility concerns
Neil noted that around 10% of firms reviewed were reported to the Audit Registration Committee, often due to ethical breaches or audit eligibility issues. Examples of common problems included appointing unqualified family members as principals or failing to maintain proper audit files.
Regulatory updates
The webinar also covered recent changes to audit regulations, including:
- New requirements for sole practitioner auditors to appoint alternates by December 2025.
- Notification obligations for accepting certain audits.
- CPD monitoring insights, with early findings showing good compliance but some gaps in ethics and verifiable hours.
