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The IRBA's latest
Public Inspections Report 2014/2015:
Striving for Consistent, Sustainable High Audit Quality
acknowledges that audit quality requires improvement, as
inspections performed over the past financial year show. The
IRBA Inspection Committee reported on 37 audit firm and 375
audit engagement inspections for the year. Most firms showed
one or more deficiencies, including ethics (independence),
engagement performance and monitoring, which require
urgent improvement.
A significant number of individual audit engagement files also
showed deficiencies that need urgent attention. A total of 16%
of firms and 6% of engagement partners were referred to the
Investigating Committee of the IRBA due to fundamental or
continued noncompliance with international auditing and
financial reporting standards, professional codes and
legislative requirements. The report also emphasises the
need for audit firms to urgently address ethics and
independencematters, as well as engagement quality.
However, caution should be applied in extrapolating the
inspection results across the entire audit population. The IRBA
adopted a risk-based inspection methodology that is biased
towards higher-risk audit areas and specific risk indicators.
This means any deficiency in these areas could potentially
create risks to the public, if not appropriately responded to by
the auditor. The risk-based approach also assists the IRBA to
focus on those identified areas where deficiencies are likely.
An assessment that an audit is unsatisfactory does not
necessarily mean that an inappropriate audit opinion was
expressed, the financial statements were misstated, or there
has been misconduct on the part of the firm or registered
auditor.
As part of its commitment to promote auditors to achieve and
maintain consistent sustainable high levels of audit quality and
produce reliable audit reports on financial information, the
IRBA implemented the recommendations from the
2013World
Bank Report on the Observance of Standards and Codes:
Auditing and Accounting
(ROSC) that were adopted by the
Minister of Finance. These recommendations are aimed at
improving the inspection processes and making them more
robust, and they include implementing a risk-based approach
and strengthening financial statement reviews.
The IRBA has now gone a step further in its inspection
procedures and implemented a Remedial Action Process that
is aimed at assisting those firms and practitioners who have
shown deficiencies in their firm's quality control policies and
procedures or audit files. During this process, the IRBA
remains aware of its independence. The Remedial Action
Process is part of the IRBA's commitment to promote
consistent sustainable high audit quality by ensuring that audit
firms and practitioners promptly address the root causes of
significant inspection deficiencies that have been raised
during an inspection. Through this more formal process,
practitioners and firms are required to submit a root cause
analysis and an action plan on how they will address reported
deficiencies and improve their audit quality. In addition, they
have to submit a written undertaking that acknowledges that
they will address all significant audit quality deficiencies that
were reported to them.
This process can be highly effective and yield the necessary
improvements needed, but only if leadership at the firms buys
into the remediation process in a constructive manner and
then develops and implements appropriate remedial plans
and strategies.
The IRBA's aim is to encourage appropriate corrective action
by communicating and engaging more with affected firms and
practitioners, providing them with an opportunity for the best
possible outcome during their re-inspection. Those firms that
identified the root causes and implemented appropriate
remedial action plans were found more likely to be satisfactory
upon re-inspection.
High-quality auditing and accounting are not only essential for
reliable financial reporting, but are also critical in protecting the
public interest and boosting investor confidence. In fact,
compliance with auditing standards, ethics, financial reporting
standards and legislative requirements is fundamental in
I NSPECT I ONS
The IRBA issues its Public Inspections Report for 2015
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Issue 32 October - December 2015