The review included key aspects of how firms might embed appropriate culture to improve audits, and included input from investors and focus groups that considered other points such as the financial pressure firms face regarding fees and remuneration.
The review covered the eight firms that adopted the FRC’s Audit Firm Governance Code, namely the Big Four, Grant Thornton, BDO, Mazars and RSM.
The overarching response from the profession was positive, with many of the firms saying they could use its findings to better integrate best practice on audit culture.
The accountancy watchdog suggested that building confidence and trust could be achieved through more extensive and transparent reporting. This was addressed by Michael Izza, ICAEW’s chief executive, who recognised that the profession has been in the spotlight recently – questions over audit quality were reignited following the collapse of Carillion in January – and that it still has a long way to go in meeting the needs of society and regaining trust.
Izza said the review set out the “need for firms to be more transparent when it comes to culture, to give greater visibility to what they are doing and to demonstrate they understand the broader value” to wider society.
He said he hoped the review would provide firms with a learning opportunity so that they are going in the right direction when the FRC reinvestigates the matter in three years.
“We also need to do more to increase competition and choice for [Public Interest Entity] audits, removing barriers to entry for those firms beyond the Big Four who currently view the risks involved as too great,” added Izza.
Hemione Hudson, head of assurance at PwC, welcomed the review “given the vital role audit firms play in underpinning the capital markets” as well as the “wider societal contribution to building trust”.
She said the firm agrees with the FRC that the profession needs to have a “continual focus” on promoting a culture “committed to delivering consistently high quality audits”.
Stephen Griggs, head of audit at Deloitte, said it is “crucial” for audit firms to “promote and embed a culture that ensures consistently high quality audits”.
“We look forward to further engagement with Audit Committees, stakeholders and standard setters on this topic, to continue to enhance understanding and consider the latest recommendations suggested by the FRC,” he added.
Andrew Goldsworthy, head of audit at Mazars UK, claimed it has “never been clearer than it is today”.that high quality audit work is in the public interest.
He added that it is necessary that all major firms be responsible for embedding “the requisite culture throughout their businesses”.
KPMG said it was pleased about the positive nature of the review and that it lays out areas of strength as well as where improvement is needed. Nigel Sleigh-Johnson, ICAEW head of audit, thought that the review showed that the accountancy profession wants to learn from both its successes and failures.
However he warned that, “Unless this commitment and focus is maintained, the UK risks losing its long held position as the centre of the global audit profession.”
Hywel Ball, EY’s head of audit UK & Ireland, said that EY had conducted its own cultural assessment last year “which evidenced the importance placed on quality in our audit teams”.
Jonathan Ericson, head of audit at RSM UK, said the firm remained “committed to embedding a culture,” that “not only sustains the delivery of high quality audits, but ensures the same high standards across the firms service-lines”.
Scott Knight, head of audit at BDO, noted that audit quality and culture are intrinsically linked but also pointed to the business case for high quality audit ¬¬– as audits account for a third of the firm’s total revenue.
He was particularly pleased that the FRC highlighted BDO’s culture of analysing the root cause of problems and fixing them early on – one of the key aspects that the FRC drew out as a way of bettering audit culture.
Grant Thornton found the report helpful when conducting internal reviews and sharing best practice to ensure constant improvement.
The firm, which was also highlighted as a case study, said it was delighted that it was singled out.