ICAEW disciplinary round-up: Audit overloadby
Audit reports continue to be the biggest source of complaints that trip up accountants, according to the latest ICAEW disciplinary orders report.
Firms in the UK have repeatedly failed to meet the standards of the Financial Reporting Council (FRC) in its annual audit quality inspection results. There has been no shortage of audit drama in the press recently, with Big Four firms such as KMPG and Deloitte repeatedly coming under fire for their audit failings.
Just last month Deloitte was reported to be under investigation by the ICAEW for its audit of multinational conglomerate Essar Oil UK, causing many in the profession to call for a “revolution” in the world of auditing.
With so many issues surrounding audits, AccountingWEB spoke to Blake Morgan's Accountants Defence team to shed some light on the root of the problem.
ICAEW issues audit sanctions/ Investigation Committee
In this month’s report alone, ICAEW committees investigated seven cases of firms that had stumbled over their audit duties.
The largest fine saw accounting firm Gregory Priestley & Stewart of Sutton-in-Ashfield pay £17,750 with costs of £4,945, as well as being hit with a severe reprimand.
The firm had issued audit reports when the client’s annual reports had not been approved by those charged with governance, in direct breach of International Standard on Auditing 700, which requires the auditor not to date the audit report earlier than the date on which the annual report has been approved.
They had also issued qualified audit opinions which stated that the audit had been conducted in accordance with international standards. There was a failure to obtain sufficient appropriate audit evidence to conclude on the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements, a breach of ISA 570.
Another audit case saw William Roberts FCA of Melton Mowbray issued with a fine of £19,600 with costs of £3,003.
These penalties were due to Roberts issuing multiple audit reports under the name of his firm, which was not a registered auditor.
Roberts also filed financial statements with Companies House which stated that a client company was entitled to exemption from the requirement to have audited accounts, which was not true.
He also failed to notify the directors of his client that they should file the special report of the auditors with the accounts once an audit had been performed.
Audit cases reported by the Audit Registration Committee included:
- Wilson Henry LLP: Given a penalty of £4,598 over breach of audit regulations and failure to ensure it was eligible for audit registration.
- Gibsons Financial Limited: Issued a penalty of £6,000 for admitted breach of audit regulation 4.04 and for allowing two principals to sign audit reports when not authorised to do so.
- John A Hyde & Co Limited: Agreed to pay a penalty of £1,750 in view of the firm’s admitted breach of audit regulation 6.06 for the incorrect completion of its ICAEW annual returns.
- Harris & Co Limited: Incurred a penalty of £350 over breach of audit regulations, for failing to ensure it was eligible for audit registration and for signing at least 40 audit reports when it was not eligible to do so.
- Sterling Associates: Registration was withdrawn under the Audit Regulations due to the firm’s ineligibility following the suspension of a principal’s practising certificate.
Blake Morgan LLP barrister Samantha Hatt comments:
Anyone conducting audit work will know the pressure of this high stakes area of accountancy practice in view of the public interest nature of the role. Auditors' reports are relied on day in, day out to inform commercial practice and reassure financial markets. Accuracy, transparency and regulatory compliance are therefore fundamental to public confidence in audit work.
Audit regulations are both complex and vast. Problems arise when auditors fail to understand or properly apply the myriad of audit regulations. Problems can also arise when firms conduct demanding and complex audit work without the requisite expertise or resource.
Added to this, auditors are often faced with constraints on time as clients squeeze down on fees and require ever more to be done for less time and money. The impact of the Covid pandemic has been another factor, in particular with employees working from home. Whilst the complexity and demands of audit work has not changed, the way in which we all work has. The benefits of physically working alongside colleagues in providing accessible support and guidance for all have been lost since working practices were forced to change.
But there are some simple and accessible steps to help avoid the trips and traps of audit work which are often overlooked by the demands of a busy practice. Yet they play a valuable role in reducing the risks of regulatory breaches and can assist to ease the pressures of this important and demanding area of work:
- Undertake regular training whenever possible.
- Keep knowledge up to date by utilising resources and publications such as AccountingWEB.
- Evaluate the level of expertise and resource required when taking on instructions and be realistic as to the requirements.
- Find ways to regularly touch base with colleagues for guidance, support and problem sharing, particularly when working remotely.
- Obtain legal advice where necessary.
Samantha Hatt is a barrister and Legal Director at Blake Morgan and part of the Accountants Defence team alongside colleagues Chris Cope, Consultant and Matthew Corrie, Senior Associate. Alison Wood, an Associate with extensive experience in defending regulatory actions, and Jessica Brown, a trainee solicitor within the Regulatory team, have also recently joined the team. The team are available to assist with any disciplinary, regulatory and compliance matters arising in the accountancy profession - click here if you require any of their services.