Audit firms, auditors and accountants were hit with a record breaking total of £43m in fines – nearly treble that of last year - the audit sector watchdog has revealed.
The Financial Reporting Council announced the enormous increase in penalties for 2018/19the other day, as part of an annual review.
Pretty staggering amounts by anyone’s standards, especially considering the amount has soared from £15.5m in 2017/18.
The firms hit by these massive sanctions must be thinking about how they can “tackle poor quality audit”, as the FRC news release put it. And if they aren’t already, they should be because the warning is crystal clear. FRC Executive Counsel Elizabeth Barrett said the sanctions, “send a clear message that where behaviour falls short of what is required, we will hold those responsible to account.”
Auditing has become an increasingly onerous task, with an explosion of data which appears to double every 18 months, clients using multiple ERP systems across various locations around the country. Practices are also under pressure to deliver audits at lower costs, requiring less effort and staff to provide a higher level of assurance.
So many hidden and costly errors could be lurking in your audits. But what can auditors do to improve standards and stamp out some of the errors that have led to these gigantic fines?
The answer lies with technology and, more specifically, artificial intelligence, which is growing increasingly sophisticated.
There’s no doubt that the quality of audits can be improved with AI, thanks to work being carried out quicker, more accurately and in higher volumes than a person is capable of. That’s not to mention the new types of insights and understanding it can offer - hence why we are hearing about major investment in AI from the big four. They recognise not only its current potential and value but also how it’s only going to get more important in coming years.
Elizabeth Barrett stressed the “critical importance” of “clarity and accuracy of financial reporting” in her remarks about the sanctions.
We understand accuracy is vital and this is where IRIS AI is so powerful. It uncovers commonly made human errors and reviews 100% of transactions in minutes, producing rich, statistically sound results in minutes. It also provides ratings to flag up the most severe risks it has found. These capabilities represent a step change in how auditors work and ultimately should help prevent audit firms from falling foul of the regulators in future.
Talking of the future, the FRC is soon being axed and replaced by The Audit, Reporting and Governance Authority (ARGA), but it’s clear this review is not simply a farewell note, but actually a starting point for the new body’s approach to enforcement. Indeed, FRC officials said it was “a baseline for measuring future enforcement performance” when the transition takes place.
It’s clear from Ms Barrett’s words there will no let up in the approach from the new regulator. She warned of ‘severe’ consequences for those who fail to improve behaviour and identify, address and report where failures occur. Auditors, take note.
Discover more here about how IRIS AI can help improve your auditing. Want further details? One of our experts will be happy to arrange a chat. Call us on 0344 844 9644.