The watchdog revealed that of the Grant Thornton audits the FRC assessed this year, just 50% were good or required limited improvements, down from 75% last year. Over the past five years, 26% of Grant Thornton’s inspected audits have required significant improvement.
In response, the FRC “increased its scrutiny” of the UK’s sixth largest firm, with steps including a new audit quality improvement plan and increasing the number of audits to be inspected in 2019/20.
The firm has come in for criticism recently for its audit work on café chain Patisserie Valerie and earlier this month announced an overhaul of its audit business.
The FRC review said that, “The firm has made senior management changes in the past year and must now take urgent action to enable audit teams to improve audit quality significantly. The firm has recognised that the quality of its audits must improve and has shared details of the actions it intends to undertake. We have met the firm on a number of occasions to discuss the plan. We do not consider that the plan is, at present, sufficiently developed or detailed to deliver the firm’s objectives.”
It outlines the areas that require improvement as: the extent and rigour of challenge of management in areas of judgement; the consistency of audit teams’ application of professional scepticism; and the effectiveness of the audit of revenue, going concern and the completeness and evaluation of prior year adjustments.
Grant Thornton, along with the Big Four and the other major UK auditors, has faced significant scrutiny recently after a raft of reviews of the UK audit market were launched in response to the collapse of Carillion.
The firm is under investigation for its audit of Patisserie Valerie following the discovery of a £40m black hole in the cafe chain’s accounts.
Responding to the FRC’s criticisms, a Grant Thornton spokesperson pointed out that the report made it clear that the entire profession must improve the quality of its work and that Grant Thornton was no exception.
“Some of our past audits for large listed firms have fallen short of the standards we expect,” they said.
"We have proactively responded by taking significant steps to strengthen audit as a specialist practice. In June 2019, we published details of a range of major investments in our structures and our people and we are working closely with the FRC in developing and implementing that plan. We have already started to take the FRC through the detail of this plan and will continue to do so in more detail in the coming months.
“Furthermore, we are commissioning an independent review later this year which will help identify further important areas for improvement.
“Audit plays a critical role in the way business and society interact, but it depends on the trust and confidence of all those who rely on it. As a profession we must commit to regaining that trust."
Read the rest of the inspection reports here.