Audits are meant to protect investors — but almost half have problems

pulse

March 12, 2018 8:47 AM

The International Forum of Independent Audit Regulators (IFIAR) survey examined 918 audits performed by 120 firms across 33 different jurisdictions.

Four in 10 audits surveyed by global regulators in a study had at least one failing.
"High rates" show global auditors need to "strengthen their systems," global audit regulators say.
Audit quality has been in the spotlight after a string of high profile scandals and collapses that accountants failed to spot.

LONDON — Almost half of all audits monitored by global regulators as part of a spot check had deficiencies, according to a new report.

The International Forum of Independent Audit Regulators (IFIAR) released its sixth annual survey of the industry last week, examining 918 audits performed by 120 firms across 33 different jurisdictions.

The report found that 40% of audits had at least one deficiency. The most common problem was a "failure to assess the reasonableness of assumptions, including consideration of contrary or inconsistent evidence." In other words, many auditors simply took what companies said at face value rather than interrogating their logic.

Other common problems include "the failure to obtain sufficient persuasive evidence to support reliance on manual internal controls" and "the failure to sufficiently test controls over, or the accuracy and completeness of, data or reports produced by management."

Once again, these errors suggest a willingness by global auditors to simply accept and check data and information provided by the companies they are surveying, rather than carrying out their own independent checks.

The IFIAR's findings will be worrying to major shareholder groups. Auditors are meant to provide an independent and impartial view of a company's financial health to help reassure investors that what management says about the health of a business is correct.

Auditors have found themselves under greater scrutiny globally after the failure of a string of high-profile companies.

Outsourcing giant Carillion recently collapsed in the UK and the British accounting watchdog has opened a probe of KPMG's handling of the case. South African retail giant Steinhoff's shares collapsed 60% last year after discovering accounting irregularities in its books. Its auditors Deloitte South Africa are also being investigated.

The IFIAR said that the "high rates of findings indicate [the] need for improvement."

Problem rates have declined from 42% in 2016 and the IFIAR said that the findings should not be used as a proxy for a "comprehensive evaluation of audit quality."

But the IFIAR said: "These results affirm IFIAR’s views that the global networks must continue in their efforts to strengthen their systems of quality control and drive consistent execution of high-quality audits throughout the world."

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