KPMG singled out for ‘unacceptable’ bank audits
The accounting regulator’s audit of the auditors revealed “unacceptable” problems by KPMG’s banking bookkeepers and a sluggish performance by a handful of challenger firms, as almost a third of audits fell below standard.
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I trained as an audit clerk have have done medium sized audits. I see the problem as not enough good auditors. You have to have a certain mentality, almost criminal, to be able to carry out proper audits. Most of those with that ability will have their own practice where they can earn good money. So you are left with bookkeeping mindset (nothing wrong with that) auditors that do not have the capability of finding something really wrong. This is just a general observation and should not be taken as a targeted criticism, but something is going wrong.
I think you are right - haven't most of the scandals been to do with deliberate acts by the client therefore a 'criminal detection' mindset sounds absolutely right to me. If the mindset is to take everything at face value then I'm not sure I see the value of such an audit. Audits are not really about awarding marks to clients for the accuracy and honesty of their books but about making sure what they represent is what is actually and really going on. Speed cameras are not there to assure the drivers in a 30 zone who are driving under 30 that they are indeed going under 30 but to deter and catch those who are or would like to exceed that limit.
(I have no audit background and maybe that shines through in my comment).
I suspect the issue is one of scale , complexity and technical change in the wide range of areas in scope in a bank as well as some natural limits to the granularity which can be applied in risk assessing at the initial stage of thne audit. I think the FRC is saying that if you do the same audit repeatedly then critical reflection on experience should help you identify gaps in your approach more effectively than is being demonstrated. That may be less true where there is ongoing and overlapping digitalisation programmes which keep moving the goalposts. There's no obvious magic bullet (the regulator is doing their job and I have no doubt the firms are also doing their best , but this is a journey which is hampered by underpricing and the regulator might consider researching what their acceptable audit might have cost and use that as a proxy for completeness in future reviews). One thought from the earlier comments - to minimise exposure to criticism the audit firms might experimentally extend the required internal review (which obviously is not forestalling the FRC criticisms ) to what in cybersecurity are known as "red teams" who are rewarded for independently finding gaps and weaknesses in your methodology and execution - the idea being that they give you a harder time than the regulators eventual review and you have a chance to remediate your work before finalisation. Maybe use of AI and automation techniques for this red teaming would allow it to be delpoyed in parallel with the actual audit.
It is interesting to see that the ICAEW are blaming the messenger not the perpetrator !!
Will they bother to bring KPMG to task or is it case of they are our mates ?
What is the word 'bookkeeping' doing in the headline? If you think that bookkeeping is a synonym for auditing, you are in the wrong job.
Independence issue is still the major underlying cause of inappropriate audit opinion. It would never change as long as auditors directly get their audit fees from their audit subject. Auditors would, at most, unconsciously avoid biting the hands that feed them. It is sad to admit that HMRC examination approach is the closest example I could think of of realistic audit independence. Statutory auditing needs a bold and drastic revolution to achieve real audit independence and uncompromised audit opinions.
Independence issue is still the major underlying cause of inappropriate audit opinion. It would never change as long as auditors directly get their audit fees from their audit subject. Auditors would, at most, unconsciously avoid biting the hands that feed them. It is sad to admit that HMRC examination approach is the closest example I could think of of realistic audit independence. Statutory auditing needs a bold and drastic revolution to achieve real audit independence and uncompromised audit opinions.
Independence issue is still the major underlying cause of inappropriate audit opinion. It would never change as long as auditors directly get their audit fees from their audit subject. Auditors would, at most, unconsciously avoid biting the hands that feed them. It is sad to admit that HMRC examination approach is the closest example I could think of of realistic audit independence. Statutory auditing needs a bold and drastic revolution to achieve real audit independence and uncompromised audit opinions.