ICAEW Audit Monitoring 2019
The ICAEW’s Quality Assurance Department (QAD) has issued “Inspect the Results”, its review of its Audit monitoring activity during 2018.
QAD note that audit is in the spotlight more than ever, following recent high profile corporate failures. Against this, QAD point out that a significant majority of their monitoring reviews show positive results, but that there are still areas where significant improvements are needed.
Around 75% of the audits which QAD reviewed were found to be satisfactory (where no concerns arose) or acceptable (where only limited concerns were identified in relatively isolated areas). 15% were found to require more extensive improvement, and the remaining 10% gave rise to significant concerns. Looking at it another way, around a quarter of the audits reviewed are not as good as they should be.
Just over 70% of QAD’s audit monitoring visits were closed without the need for any follow-up action, just under 20% required some form of follow-up action (for example, the submission of external hot or cold file reviews), and the remaining 10% resulted in reports being made to the ICAEW’s Audit Registration Committee for regulatory action to be considered.
The document lists QAD’s “Top 10” most common findings, but the first two in the chart – weaknesses in audit evidence (ISA 500), found on just over half the audits reviewed, and audit documentation issues (ISA 230), found on just under a third, are significantly ahead of the other eight, none of which arose on more than 10% of the audits reviewed.
QAD go on to identify three key areas for firms to focus on, where poor work can seriously undermine the audit:
Revenue: completeness is not always tested, material income streams are sometimes omitted from testing and, if substantive analytical procedures are to be used to provide evidence, these are not always carried out sufficiently rigorously;
Going concern: this is often a challenging area due to the judgement and inherent uncertainties involved, but especially so currently due to the economic uncertainties surrounding Brexit; and
Group audits: ISA 600 requires the group auditor to take responsibility for the group opinion, meaning that they need to understand the group and carry out sufficient procedures of their own. These include reviewing the working papers of component auditors, which might be particularly challenging where overseas components are involved. Firms sometimes lack experience of carrying out these types of audit.
Overall, QAD note that poor audit quality is the main reason for regulatory action, but that more vigilance is also needed in other areas, such as independence and ethical requirements, eligibility issues, errors in the information reported on firms’ ICAEW Annual Returns, and a failure to preserve audit files for the necessary period or to make them available to QAD.
A guide is given to other helpful documentation which can be obtained from ICAEW.
The full report can be accessed at this link
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