The overall quality of auditing in the UK remains unchanged. This is the primary thrust of a new report from the Financial Reporting Council (FRC), published on the completion of its first year as the Competent Authority for Audit (2016/17).
To the casual lay reader the report might appear slightly self-contradictory. The summary release says that a focus on, and investment in, improving audit quality, together with promoting a culture of continuous improvement, is beginning to pay off.
The FRC says that this is particularly the case for audits of larger companies where it has targeted improvement. However, it says, the picture is not consistent across all firms, market sectors and audit procedures.
Squaring the circle
Melanie McLaren, the FRC's executive director for audit and actuarial regulation, helps square the circle. In the monitoring of audit quality she has yet to see overwhelming evidence of improvement in all sections of the market and consistency.
But she adds: “Firms are, though, investing in improvement measures, and those audit committees surveyed report that they are seeing evidence of good quality audit.”
High profile accounting failures, as well as the results of audit monitoring, continue to highlight cases where auditors have not met expectations. This is also the area where the FRC finds the greatest number of issues. The scandal at BT Italia springs immediately to mind.
PwC in an unwelcome spotlight
PwC was the auditor thrust into an unwelcome glaring spotlight in that case. The Tesco accounting scandal of 2014 is another. PwC was the auditor there too. Morrisons, another of the UK's major supermarket retailers, came under scrutiny for similar reasons in 2015.
We asked McLaren if she could discuss these cases but the short answer was no. “We cannot comment on open investigations,” she replied.
Reutrning to the FRC report, the key message from audit monitoring activity in 2016/17 is that the overall standard of audit work being done for FTSE 350 companies in the UK is improving.