Save content
Have you found this content useful? Use the button above to save it to your profile.
FRC report again highlights audit failures | AccountingWEB | Picture of a chlid with a F grade on their test
iStock-skynesher-fail

Is audit really that hard?

by

Philip Fisher takes a look at the FRC's annual review of audits and finds little to offer comfort. Is auditing really that difficult?

17th Jul 2023
Save content
Have you found this content useful? Use the button above to save it to your profile.

Has it ever occurred to you that the major firms of accountants must be the unluckiest organisations in the world?

How else can you explain the announcements year after year from the Financial Reporting Council (FRC) that its random selection of audits to test have proved embarrassingly substandard?

Conspiracy theorists might take a different approach concluding that the FRC has cleverly infiltrated whistleblowers into each of the major firms of accountants with the sole purpose of getting leads on the only audits that were not pristine masterpieces which could be used as exemplars for those wishing to perfect the art form.

If neither of these explanations is correct then the leaders of our profession don’t seem to have the faintest idea about how to carry out reliable, professional and effective audits consistently.

Another embarrassing report card

Each summer, just as the media is entering what is known as the “silly season”, grateful journalists have the opportunity to write scathing articles drawing data from FRC’s annual audit reviews of those top seven practices. While, in the past, every firm has delivered results that should be regarded as unacceptable, this year there is a single exception, with Grant Thornton emerging from the audit quality review inspection completely unscathed.

It would be shocking enough for this to happen on an occasional basis, anyone can have a bad day, but the major firms manage it year in, year out.

Perhaps the first explanation above is correct. Out of thousands of impeccable audits, the FRC just happened to stumble on the half-dozen duds every single year.

If you believe that, you will probably be voting for Boris Johnson as the next leader of the Conservative Party on the basis that, like George Washington, he cannot tell a lie and is grossly misunderstood.

Impact on the reputation of the profession

A measure of laxity in the FRC’s reviewing policy seems apparent since the body doesn’t even distinguish between a good audit and one in which limited improvements are required. Surely, a good audit is a good audit, not one requiring even limited improvements? Looked at from a different viewpoint, why bother to identify audits requiring limited improvements if they are good?

The 2022/23 statistics could well lead to that favourite party game, in which accountants pretend to be used car salespeople or confidence tricksters in an attempt to attain a veneer of respectability.

When is the FRC going to take substantive action? If audits are carried out this badly on a long-term basis, then perhaps it is time to withdraw auditing licences from firms whose work is unsafe.

Too big to fail?

That just isn’t going to happen. If every firm that underperforms was kicked out, there would be nobody left to carry out large audits.

As Richard Hattersley’s article on the latest report identified, the biggest miscreants this time around according to the FRC are BDO and Mazars.

Those who have been following the repeated attempts to improve the quality of auditing might recall that one of the solutions put forward involved forcing big four firms to share audits of large quoted companies with those in the next tier down. Given this latest thumbs down to two of the major players in that group, is such a move really a good idea?

Some of the statistics still beggar belief, even if there have been minor improvements in recent years. To pick a few choice disasters:

  • One quarter of all audits reviewed required more than limited improvements i.e. they were a long way from the required standard.
  • Nearly half of Mazars’ and one third of BDO’s audits required more than limited improvements.
  • Close to 20% of FTSE 250 audits required more than limited improvements.
  • For the first time in three years, one FTSE 250 audit required significant improvement. This suggests that it was quite probably not worth the paper that it was written on or the hefty fee charged.
  • Three times as many FTSE 100 audits required improvement compared with the previous year.

It was also worrying to see that despite investing heavily to improve audit quality, recommendations for Mazars from the FRC said that they should:

  • Increase the focus on the firm’s ethics function and the changes being made in response to the findings.
  • Review and assess the adequacy of the firm’s portfolio review, its related risk assessment and risk panels or other predictive audit quality actions.

More positively for Mazars, in 2021/22 over one-third of sampled audits required significant improvements, this time there were none.

A look at the FRC report shows that on a firm-by-firm basis, there are some small but possibly encouraging signs of hope.

In particular, we applaud Grant Thornton who have been relegated from Tier 1 to Tier 2. This might sound bad in footballing terms but actually means that following a 100% success rate in the latest review, the firm will require less supervision going forwards. Let’s hope that they thrive under the new, more relaxed regime rather than striving for promotion back to the bad boys’ league.

The report paints a worrying picture

This data is a sad reflection on the reputation of the UK’s seven top firms and the regulators who are supposed to govern their auditing quality.

Given the past history, the expectation has to be that the 2023/24 report will once again hark on minor improvements while around a quarter of all sampled audits turn out to be inadequate.

In passing, it is noted that the government’s attempts to replace the FRC with a new, more effective body, ARGA seem to be advancing at a snail’s pace. Perhaps when the change finally comes through, the new body will take substantive action to turn things around. Don’t hold your breath.

Replies (42)

Please login or register to join the discussion.

avatar
By JustAnotherUser
17th Jul 2023 15:26

"the leaders of our profession don’t seem to have the faintest idea about how to carry out reliable, professional and effective audits"

Maybe the leaders have different goals, you see time and time again the same culprits getting a telling off and a small % fine vs overall fees for a poor audit, the partners involved get the same slap but stay in employment, for year on year and failure on top of failure.

Not my area sorry but 'The primary purpose of an audit it to comply with legal regulations which seek to ensure companies are operating legitimately' ... if Firm A did an amazing job auditing, and lets say I was the CFO recently failed FTX, I want an audit firm who is known to bend the rules and swallow the fines vs one that was good at doing its job.

Its just white collar crime at the time, but what's £1m fine on top of £20m in fees. Just the cost of doing business.

Thanks (0)
avatar
By Justin Bryant
17th Jul 2023 16:10

"Is audit really that hard?"

That's obviously the wrong question. The right question is "Would there be this much audit scandal if audits were done by the NAO (or similar)?"

The answer to that question is obviously "no" and you merely have to consider why that would be, to in turn get the solution to this problem i.e. basic conflict of interest re high audit fees and inexperienced, junior audit fodder staff doing the important evidence gathering work (rather than the senior, experienced people who do not want to get their hands dirty box-ticking for a living, but are more than happy to be highly paid reviewers of boxes ticked by others), neither of which would be an issue if NAO (or a similar independent entity) did audits (but since that won't happen these scandals will persist - regardless of how simple an audit is in theory).

Thanks (4)
Replying to Justin Bryant:
avatar
By Hugo Fair
17th Jul 2023 18:28

I feel it's time for one of my truly naïve questions ...
* Why is it thought acceptable that a company should appoint its Auditor?

I'm sure drivers would love to be able to appoint their personal traffic cop, or builders to appoint their personal planning agent, and so on.
I know that 'money talks', but as openly/brazenly as is the case for audits?

Thanks (10)
Replying to Hugo Fair:
avatar
By Justin Bryant
18th Jul 2023 08:56

That's exactly my point re the basic conflict of interest re fees i.e. elephant in room.

It's no different to so-called independent expert witnesses in court cases, who will invariably be biased in favour of whoever's paying them.

Thanks (4)
Replying to Justin Bryant:
avatar
By johnjenkins
18th Jul 2023 11:43

So we are all agreed then that "auditing" is a relatively easy part of Accounting (it's just checking someone else's work).
The problem then is the interpretation of the "Company Accountants" version of events as opposed to the "auditors" version of events.
As it is the Directors responsibility to submit accounts, they will invariably submit them how they want them to look. In my view there is nothing wrong with that as long as the "auditors report" states where they think the Accounts haven't complied with FRS's etc. and why. So in essence the auditors report should state exactly what has been done, how it was done and the conclusions reached. Otherwise we will end up with "who audits the auditors" scenario.

Thanks (2)
Replying to johnjenkins:
avatar
By Justin Bryant
18th Jul 2023 17:29

No, the problem, as stated by me above, is that there is no proper auditor independence and the usual private sector auditor greed for profits means that inexperienced junior staff (AKA audit fodder) do the important evidence gathering work, when this should be done by experienced senior staff. The regular fines are just a cost of doing business (that is effectively borne by clients anyway due to the oligopoly) and are not a proper disincentive and will change nothing.

Thanks (1)
Replying to Justin Bryant:
7om
By Tom 7000
18th Jul 2023 17:49

Are you saying the ICAEW fines are cheaper then being sued for $400m by the client for qualifying an audit report....bit cynical

Thanks (0)
Replying to Justin Bryant:
avatar
By johnjenkins
19th Jul 2023 09:44

I actually did say that the auditors report should be independent. Where there are differences, these should be detailed, otherwise there is no point in having an auditors report or an audit for that matter. Problem comes when Directors etc, try and have the auditors report changed to suit themselves.

Thanks (1)
Replying to johnjenkins:
John Toon
By John Toon
19th Jul 2023 10:11

Personally I don't think auditors should be independent (controversial I know) but I see with the larger auditors the existing rules make the relationship combative and put all the power into the auditors hands. What that means is boards, and FD's, withhold information that may be relevant to the auditor because the audit turns into a battle. That can't be healthy for a properly functioning professional service to occur.

In the SME audit space at least we are still allowed to provide peripheral services to clients and those relationships are a bit more trusting. I'm not going to Barbados every weekend with the FD, or getting a brand new Ferrari every couple of years, or even playing golf, but I do know more about the business, the people involved and the personal motivations. Am I blinded by their personalities and not able to ask difficult questions no, but then I'm not an idiot...

As for the NAO doing audits - that's hilariously naive. Most NAO staff aren't aware that computers exist, or what a commercial operation looks like, plus they work at a snails pace so the chances of a PLC filing their accounts within 6 months would have to be more like 6 years

Thanks (1)
Replying to johnjenkins:
avatar
By Andrew3018
20th Jul 2023 17:30

"Easy" is a very relative when it comes to auditing. Reasonable expertise on accounting standards and tax laws is one thing and on auditing standards and computer controls is another. The higher the reliance on manual processes and controls the more time consuming audit is. The higher the reliance on complicated computer assisted controls the higher the cost as it requires involvement of specialised IT people. Auditing is highly regulated let alone expensive because it's actually a very complicated service to provide if done properly. The real problem here is independence and the strong pressure to achieve high budget recoverability rate.

Thanks (0)
Replying to johnjenkins:
avatar
By Andrew3018
20th Jul 2023 17:30

"Easy" is a very relative when it comes to auditing. Reasonable expertise on accounting standards and tax laws is one thing and on auditing standards and computer controls is another. The higher the reliance on manual processes and controls the more time consuming audit is. The higher the reliance on complicated computer assisted controls the higher the cost as it requires involvement of specialised IT people. Auditing is highly regulated let alone expensive because it's actually a very complicated service to provide if done properly. The real problem here is independence and the strong pressure to achieve high budget recoverability rate.

Thanks (0)
Replying to Andrew3018:
avatar
By johnjenkins
21st Jul 2023 12:04

The real problem here is that auditing has been made more complicated so that higher fees can be charged. Computer systems aren't complicated per se, people make them complicated in order to churn out information that nobody will use or is interested in, then charge an extortionate fee for the privilege.
An Audit should be totally independent, but without being arrogant.
Accounting, even for large concerns, should be kept as simple as possible.

Thanks (0)
Replying to Justin Bryant:
avatar
By Justin Bryant
28th Jul 2023 11:44

I see judges criticising expert witnesses for this basic reason all the time. See recent example at para 90 here: https://www.bailii.org/ew/cases/EWHC/TCC/2023/1880.html

Thanks (0)
Replying to Justin Bryant:
avatar
By Justin Bryant
16th Aug 2023 15:46
Thanks (0)
avatar
By paulwakefield1
17th Jul 2023 20:18

Or maybe the fault lies in the FRC dictating and/or looking at the wrong things. I am pleased to say that I haven't been involved in auditing, apart from being on the receiving end, for not far off 40 years.

By far the best auditor I ever worked with would never have passed an FRC inspection - sparse documentation, technical accounting not their forte but the ability to sniff out and home in on the issues, read and dissect a set of accounts and put the directors on the spot was second to none.

Most auditors I have come across in recent years seem to be box tickers. There was one honourable exception; only asked I think two questions druing the audit - both humdingers and nailed the two discussion areas

I suppose I ought to read the FRC report but I sometimes wonder what is meant by needing "limited improvements". I have this horrible feeling that they mean they have been using using the wrongcolour pen (or font).

Thanks (0)
avatar
By Truthsayer
18th Jul 2023 09:33

I did auditing in my student days in the Eighties, and the problem for junior staff is that there was nothing like enough time in the budget to do a proper job while also performing the mountain of box ticking and form filling that had been recently introduced. There was just enough time to perform perhaps a quarter of the testing needed, then the rest of the time would be spent writing a load of lies in the audit file of what had been done. If one of your test items had an anomaly, there was no time to investigate it, so you just chose a different item to test that gave the expected result, and wrote that one up instead. You had to gloss over anything that suggested a problem, as otherwise you would go over budget, or get a reputation as one who riled clients, either of which would get you sacked and replaced by someone willing to fake it.

Thanks (5)
Replying to Truthsayer:
avatar
By Andrew3018
20th Jul 2023 12:18

Incredible. We maybe 3 decades apart when we did audit but that’s exactly the same practice I left behind in 2006, perhaps apart from copying and pasting of previous year's audit write-ups since audit files were already in electronic form. I was a senior associate when I left and the pressure to increase budget recoverability rate and not to rile the client is enormous. I am afraid audit will still be the same in the future until this inherent flaw in independence is sorted.
The saying that “you don’t bite the hands that feeds you” is a very powerful influence in audit.

Thanks (0)
avatar
By twohaporth
18th Jul 2023 10:09

I can remember auditing in the mid 1960s, working for one of the big firms, far less box ticking and much more digging but the result was much the same, the audit managers didn't want waves and thus problems tended to be swept under the table. We even did the audit of a brewery and got beer instead of coffee!

On the other side I really don't see how computer systems can be properly audited - too much data shovelled in and automatically processed - largely uncheckable I should think. Also too many clever tech people who know how to play the system better than those looking at it.

Glad I'm retired. Over to you Guys and Dolls and the best of luck - you'll need it!!!

Thanks (0)
Replying to twohaporth:
avatar
By johnjenkins
18th Jul 2023 12:56

I too trained in the mid sixties but I've never had problems with computer printouts, your looking at the same stuff.
We also need to consider that Accountants may use different methods of reaching a profit or balance sheet figure. They can be different but both right depending on your interpretation. There also might be an underlying reason for the company accountant to produce accounts in a certain manner. The crux is that the auditors report should remain independent and state what the auditors feel. The shareholders can always ask for further info.

Thanks (0)
7om
By Tom 7000
18th Jul 2023 11:03

How can all those people with 100s of years of training between them and all that experience and they passed multiple exams and all they do is audit, not get it right...

What chance does the sole practitioner have?

I have always been puzzled by this...

Thanks (2)
avatar
By carnmores
18th Jul 2023 12:33

my mind is drifting back to 1973 when I went on my first audit. I knew nothing then and probably even less now if I believed everything people on here said about me. for the first year you were sent out with a senior and a procedural manual, you did what you were told and filled out various spreadsheets following transactions from beginning to end, you weren't really told how to evaluate evidence which is the crucial point or how to properly deal with stock and other balance sheet items. I came across my first computer in 1976 which had cost the client £20,000 and did the factory wages which was exciting. Things have obviously changed in many ways namely computerisation BUT not the fact that raw untrained staff are sent out at excessive charge out rates and without a full understanding of the business and understanding evidence. I suspect that it will be ever thus at least small firms dont have to put up with audits anymore they were an unwarranted cost for most but one would hope that audits of larger companies would improve.

Thanks (0)
Replying to carnmores:
By ireallyshouldknowthisbut
18th Jul 2023 13:47

I thought the entire business model was to send out people who didn't know too much, so they couldn't find anything.

I went out to a couple of jobs as a 3rd year and covered some 1st and 2nd year work and was very unpopular with the manager as I used my brain and pointed out massive holes in the tests. I recall the accountant the other end on on job commenting it was clear from the questions I was asking, I would be the only one to uncover anything, and lo, I did. When the roles were reversed and in industry and our manufacturing site was under audit, I naturally had to babysit them as I did final accounts etc. The auditors refused to test a new business stream as it was not in the audit plan, despite the main factory being very tightly controlled by an excellent FC and audited to death, and the new area being wholly untested with an FC who I would be being polite if i said was unproven.

Thanks (1)
John Toon
By John Toon
18th Jul 2023 13:37

I always find it fascinating when the annual auditor bashing season starts, not least by people who haven't operated in audit for many years or decades. It's also somewhat whimsical to think that smaller firms are any better at audit than the big firms, it's just that they have the high profile clients that matter to the headline makers here at AWeb and the Daily Mail.

Here's the state of play in audit at the moment - most firms are still severely under resourced, most audit budgets are tighter than a duck's backside, most staff are overworked, most audit work is boring and the increasing regulatory requirements turn the work into checklist ticking exercises so staff operate as robots. Most audit failings occur because of a lack of thinking...

Firms and the regulators are unwilling to enter into any kind of critical path analysis as to why problems have occurred so the reality is we have no way of improving audit quality with insight, so we just add more regulation and checklists. Couple that with the fact that the FRC can spend weeks, sometimes months, scrutinising an audit file that would have taken much less time to put together, with additional hindsight benefit, and there's little wonder they poke holes in files.

Thanks (3)
Replying to johnt27:
avatar
By paulwakefield1
18th Jul 2023 14:32

That articulates the points I was trying to make somewhat better than I.

Thanks (0)
Replying to johnt27:
avatar
By carnmores
18th Jul 2023 14:50

if the budgets are too tight then dont take the engagement.

Thanks (0)
Replying to carnmores:
John Toon
By John Toon
18th Jul 2023 15:31

Tell that to the audit partner who wants the £120k audit fee, lowballs to win the work, and then hammers the team because it should have been a £150k fee...

Thanks (0)
Replying to johnt27:
avatar
By carnmores
18th Jul 2023 15:54

we see your dilema

Thanks (0)
Replying to johnt27:
avatar
By carnmores
18th Jul 2023 15:54

we see your dilema

Thanks (0)
Replying to johnt27:
By ireallyshouldknowthisbut
19th Jul 2023 17:40

johnt27 wrote:

Tell that to the audit partner who wants the £120k audit fee, lowballs to win the work, and then hammers the team because it should have been a £150k fee...

But out of that, they pay the staff £50k max and take £70k profit. That's the problem right there. Not enough people on the ground doing any thinking, all sat staring at pointless checklists and the partner making £2million a year.

Thanks (0)
Replying to johnt27:
avatar
By AndrewV12
27th Jul 2023 09:54

I do take your points John but regrettably John, there is an awful lot to bash (SEE BELOW), its so much shoddy audits are being performed its the attitude of the Big 4 to not learn from their mistakes or even want to learn from their mistakes, it all seems its nothing more than a occupation Hazard. Their attitude seems to be LETS SEE HOW THIN THIS ICE IS.

Some of the statistics still beggar belief, even if there have been minor improvements in recent years. To pick a few choice disasters:

One quarter of all audits reviewed required more than limited improvements i.e. they were a long way from the required standard.
Nearly half of Mazars’ and one third of BDO’s audits required more than limited improvements.
Close to 20% of FTSE 250 audits required more than limited improvements.
For the first time in three years, one FTSE 250 audit required significant improvement. This suggests that it was quite probably not worth the paper that it was written on or the hefty fee charged.
Three times as many FTSE 100 audits required improvement compared with the previous year.

Thanks (0)
Replying to AndrewV12:
John Toon
By John Toon
27th Jul 2023 11:38

I'm not here to defend the Big 4, they probably have really good lawyers (and other people) that can do that... Nor am I making light of poor audit quality, but what I am trying to say is the lens is only focussed on the most high profile part of the market for good or bad.

I also think it's disingenuous to suggest that audit firms (and staff, generally) don't take quality seriously and just assume that their PI insurers will pick up the tab. On the balance of probabilities there are always going to be some "bad" audits and that applies not just to the Big 4+ but down to the smallest of firms, who don't have anywhere near the resource of the larger firms.

Quality management and improvement are also significant change management challenges and with the larger firms you're looking at implementing change across 1,000's of people which I certainly don't underestimate or place unrealistic expectations on. A small audit firm with a handful of people may be able to achieve change inside 1 meeting (unlikely) but that isn't going to wash at Mazars.

I know when GT came bottom of the pile a few years ago they implemented a ton of changes - new audit methodology (created inhouse), new technology, entirely new audit system (built from the ground up), staff training, new QM processes and dumped a load of clients. That takes years to implement and probably was years in the planning.

What would be more insightful, but still doesn't exist, for the debate would be to understand longer term trends on quality - are they up or down (and not just for the biggest firms). Also it would be helpful to see some route cause analysis - not just "the audit was crap" because the GC work was unreliable, but why was the GC work unreliable; what assumptions were made and why; why wasn't this picked up in review; are we lending hindsight to an issue the audit team weren't aware of at the time; was there a lack of experience in the team etc etc

Ultimately, what can we all learn as a consequence and what (appropriate) changes should be implemented to achieve better quality ? (because a small audit firm with poor quality audits isn't going to do what GT have done - they're more likely just to give up auditing)

Thanks (0)
avatar
By HLB
18th Jul 2023 13:56

I have wondered for years how the big firms get the work that they do and how banks in particular want a big firm name on the audit report. Is it because when it all goes wrong it will be easier for them to be sued as they are known to be negligent?

Thanks (0)
avatar
By David Gordon FCCA
18th Jul 2023 17:11

Reality is that the likes of the "Big Four" have fallen into the trap of promising more than they could ever deliver. This to satisfy Audit theory perfectionists and or client directors only too happy pass responsibility for their failings on to the "Auditor".
With best intentions it is physically impossible for any firm of Auditors to certify "True and fair" for any international company of any size. To do so would require audit staff on site for 27 hours a day 367 days a year. The catch-22 is then, at which point is audit independence lost?
Truth in audit, remains testing and sampling, and relying on the law of probabilities.
It is an inexact science, and still relies on common-sense of the auditor, however Ginormous the client.
But
Our leaders may not admit this, because it would destroy their market power.
Sloppy directors of companies would have to accept blame, and cost.
Lazy investors might actually have to investigate the companies they put money into, instead of taking a recommendation from a machine taking a recommendation from a machine
and of course, consequently;
A countable percentage of my fellow professionals think working on audit in the 21st century. stinks. The only attraction being the money.
As an aside
The idea that audit might be better if run by National Audit Office is probably on the same intellectual level as, MTD is a jolly good idea.

Further, maybe I am too old for this game:
The "Primary purpose of an audit is to comply with legal regulations.." Is dangerous nonsense.
The primary purpose of audit in the first place is to independently verify that the company's administration and or accounting systems are working properly to the benefit of the company, and only then to consider any regulatory requirements.
If you want to be a detective, join the police force.

Thanks (0)
avatar
By jeremy28
19th Jul 2023 09:18

A small charity I work for as FD is currently being audited (due to a couple of large donations).
I put together the accounts by downloading transactions from the bank and analysing in Excel. One depreciation journal done by the accountant themselves.
I'm being driven to distraction by the auditor trying to review my IT systems, methods of recording transactions, controls around journals, access to IT systems etc etc. I've tried to point out that it's all entirely irrelevant as all he needs to do is to review the bank analysis (maybe compare to bank statements??!) but I'm not getting very far.
No efforts yet been made to check for understatement.
I've been asked to do my own land registry search (though the charity doesn't own any land).

So none of this article is very shocking. Audit is a mug's game.

Until there is a central record of bank accounts how do you rule out a Patisserie Valerie scandal?

Thanks (1)
Replying to jeremy28:
avatar
By johnjenkins
19th Jul 2023 09:34

Sledge hammer to crack nut.
As there are very few small audits these days, it is assumed that the all singing dancing IT and AI is being used everywhere.

Thanks (0)
Replying to jeremy28:
John Toon
By John Toon
19th Jul 2023 09:58

You should read ISA 315, then ask to see the auditor's methodology for undertaking the planning work. Gone are the days when audit for small organisations could be simple, along with auditors actually understanding what's required of them! If they did what you suggested they'd get a severe kicking in the knackers by whomever their regulator is...

Also remember that if in 10 years time it's found out that you've defrauded said charity out of £2.50 for an overzealous expense claim it's the auditors fault, not yours, or the trustees, or anyone else in the organisation

Thanks (0)
Replying to johnt27:
avatar
By jeremy28
19th Jul 2023 10:02

...along with auditors actually understanding what's required of them

Yes, he came in this morning to review fixed assets and said, "well none of this makes sense but that's audit"... I bit my tounge as I really want him out and the audit signed off, and it's not my job to teach him how to audit, but it's hardly inspiring confidence in the audit profession.

Thanks (1)
Replying to jeremy28:
By ireallyshouldknowthisbut
19th Jul 2023 17:48

jeremy28 wrote:

...along with auditors actually understanding what's required of them

Yes, he came in this morning to review fixed assets and said, "well none of this makes sense but that's audit"... I bit my tounge as I really want him out and the audit signed off, and it's not my job to teach him how to audit, but it's hardly inspiring confidence in the audit profession.

We have similar with one client I have who requires an audit due to FSA regulations. The auditors ask the dumbest of questions, which they ought to know enough not to ask if they understood the business properly. They require my client to make up all sorts of nonse such as forecasts (and the business is in the corp finance area so it's all huge numbers or nils, you cant forecast) its a huge waste of everyone's time. The business plan is "I have enough cash to last me at least 3 years if we sell nothing". But that is not good enough, we have to make up some rubbish instead with monthly outgoings (annual divided by 12!) and random incomes just chucked in there.

Thanks (0)
Replying to jeremy28:
avatar
By Andrew3018
20th Jul 2023 12:52

I think you feel that way because you know the company. On the other hand, auditors have zero idea about how the company process and records transactions, errors, overide adjustments and the level of oversight. Once the auditors got an idea how you operate and how reliable your controls are then time to establish sample size for testing. That is just an overview of the boxes that auditors have to tick to comply with auditing standards and regulations.

Thanks (0)
Replying to Andrew3018:
avatar
By johnjenkins
20th Jul 2023 13:12

We were taught that if it was "material" then bring it to the partners attention. If not then just make a note for next year to pick up on.

Thanks (0)
avatar
By johnjenkins
20th Jul 2023 11:59

I have a sneaking suspicion that a lot of these new fangled "check systems" are marketing ploys to get that "added value" to the bill. I saw what this marketing rubbish did (and is still doing) to the banks and now, finally, it has emerged in audits. It is time audits with all their paraphernalia was put out to pasture.

Thanks (1)
avatar
By AndrewV12
27th Jul 2023 09:34

'Some of the statistics still beggar belief, even if there have been minor improvements in recent years. To pick a few choice disasters:

One quarter of all audits reviewed required more than limited improvements i.e. they were a long way from the required standard.
Nearly half of Mazars’ and one third of BDO’s audits required more than limited improvements.
Close to 20% of FTSE 250 audits required more than limited improvements.
For the first time in three years, one FTSE 250 audit required significant improvement. This suggests that it was quite probably not worth the paper that it was written on or the hefty fee charged.
Three times as many FTSE 100 audits required improvement compared with the previous year.'

A brilliant article Philip, instead of looking at the individual poor audits, you stepped backed and looked at the bigger picture a great article.

Fear not Cowboy builders, shoddy workmen, conmen, believe it or not your in very good company when in comes to auditing anyway.

Thanks (1)