Audit monitoring report 2020
A key part of our role as an improvement regulator is to provide help and support to our firms; to ensure you have the tools and resources to help your firm maintain the expected standards. The Audit Monitoring Report is an important resource for firms regulated by ICAEW for audit services.
From where we are now in 2020, in the midst of the coronavirus pandemic, 2019 seems like another world, when the uncertainties surrounding Brexit were the major focus.
The coronavirus pandemic has catapulted us into a new territory, posing significant additional challenges for business and auditors. With audit already under the spotlight, current uncertainties only serve to underline the importance of robust auditing and professional scepticism, especially in the areas of going concern and adequacy of disclosure.
In this new two-part report, we explain:
- how firms can improve the quality of their audit work based on the findings of our Quality Assurance reviews during 2019;
- the changes we require firms to make including the introduction of root cause analysis; and
- the importance of audit quality, the future of audit and our approach to monitoring.
As well as an analysis of the key areas that need improvement, there are examples of good practice to help explain how improvements can be made. We urge you to share this report with your teams and to use it to help maintain and focus on continuous quality improvements for audit work.
The key areas that need improvement are:
- Judgement – auditor scepticism is essential for this. Problems in the following areas can be fundamental to the audit:
- Going concern (of heightened risk against the backdrop of Brexit and the coronavirus pandemic).
- Long-term construction contracts.
- Property valuations.
- The important of good documentation and effective reviews. We also explain how root cause analysis should be incorporated into the process as well as a reminder of the requirements for cold file reviews and the value of external reviews.
You can find a comprehensive list of ICAEW audit resources at the back of the report including details of the ICAEW training films, False Assurance and Without Question that bring to life many of the areas the QAD highlight as requiring improvement.
Our regulatory role: Audit
ICAEW is the largest Recognised Supervisory Body (RSB) in the UK. We regulate around 2,600 firms for audit, from the Big Four to sole practitioners. The firms regulated by ICAEW are subject to monitoring by the Quality Assurance Department (QAD). In 2019 the QAD completed reviews at 496 firms. The work of the QAD is overseen by the independent ICAEW Regulatory Board (IRB) and the Financial Reporting Council (FRC). Firms that are found to have carried out poor quality audit work are reported to the Audit Registration Committee (ARC), an independent committee, consisting of an equal number of ICAEW member volunteers and lay representatives with a lay Chair. The ARC ultimately takes decisions on whether firms referred to it by the QAD should retain their registrations. A registration is a licence (permission) to carry out audit work.
Yearly, we report publicly on the findings of our monitoring activity across the regulated areas we regulate firms and individuals for. In addition to the Audit Monitoring Report, the following are available for 2020.