The Audit Quality Inspections Annual Report for 2021/22 produced by the Financial Reporting Council (FRC) review the UK’s seven largest audit firms. These seven firms being the Big Four plus BDO, Grant Thornton and Mazars.
Audit quality in the UK market has been under immense scrutiny over recent years, on the back of multiple high-profile business failures and frauds. The quality of audit services and the relevance of the audit service has been questioned by the broader corporate community. The audit regulator has been criticized and is now on a trajectory from the FRC in its current form towards a larger, more powerful regulator named ARGA.
UK firms outside of these 7 may view some of the issues discussed during the government-led reviews to be irrelevant to their firms. However, the findings identified within the audit inspection results provide a clear list of practical lessons to be learnt, which can improve quality within an audit firm, or on an individual audit engagement.
As the definition of public interest entities evolves more accounting firms are likely to fall within ARGA’s remit. The QAD’s approach (as the UK’s secondary regulator) will also respond to the changes in their directive from ARGA. Audit firms of all sizes in the UK would be wise to heed the advice included within these reports. Prevention being better than cure…
Similarly, firms outside the UK can also benefit greatly from the wisdom provided by the published results from these detailed inspections. The UK audit market is one of the most advanced in the world. The level of investment by these 7 firms in technology, methodology, and process over the last 10 years has been immense. Leveraging their learnings is highly likely to benefit firms of all sizes outside of the UK market.
At an overall level, the inspection results demonstrate improvement in audit quality. For the first time in recent memory one firm, Grant Thornton, achieved 100% of their audits being good or requiring limited improvement. Overall, 75% of audits inspected achieved these ratings which is up from 71% in 2021.
The FRC point to the positive impact on audit quality of their increasingly assertive supervision and investment from firms into technology and people capabilities.
But the results still show that 1 in every 4 audits inspected needed more than limited improvements. That remains unsatisfactory for a profession striving to respond to the external criticism.
Audit quality is not an issue exclusive to 7 firms. Auditors and accountants in all firms have a role to play in improving the perspective of auditing inside and outside of the profession.
The 7 individual reports sum to an immense 257 pages. There is a wealth of valuable insights hidden within each of the reports. As well as the key findings the FRC has noted during their individual audit inspections, the reports include good practices observed, the quality control procedures the firms have implemented, forward-looking supervision and internal quality monitoring results.
To help medium and small accounting firms more quickly and easily understand the key themes, this guide distils down the 257 pages into a succinct summary of the immediate takeaways. It also includes a set of handy cheat sheets to make it easy to implement best practices across your firm or on your next audit.
This guide covers 7 themes:
Cheat-sheets are included in the appendix of this guide, to download our guide, click here or click the banner below. Use them to make high-quality auditing business-as-usual.