In 2018, 26% of audits reviewed required “some form of follow up action”. Meanwhile one in 10 were given the classification “significant improvement needed” – almost double the figure in 2016.
In nearly 10% of visits conducted by ICAEW there were issues significant enough that they were reported to the Audit Registration Committee (ARC) for consideration of regulatory action.
The reports stated that most of the cases reported to ARC showed “significant weakness in audit work, often combined with ineffective internal cold file review processes”.
Those firms in question will be required to submit evidence of improvement, while some will be restricted in taking on new business with permission.
The report also noted that there were risks in other areas including independence and ethical matters, such as principals or their close associates holding shares in audit clients, or issues relating to fee dependency.
It also pointed to instances of potentially misleading errors in a firm’s annual returns, or some cases where audit files were missing or were not made available for review.
While there was some evidence of areas needing significant improvement, the majority of reviews were deemed either acceptable (49%) or satisfactory (25%).
The proportion of reviews given satisfactory classification – in which there are no concerns – remained the same as in 2017, however was still around 5% lower than in 2016.
The number that were given an acceptable classification – where only limited concerns in relatively isolated areas were noted – decreased slightly from last year but was still better than 2016.
The report said that “audit quality continues to be acceptable in a good majority of the audits” that ICAEW reviews.
“However, around a quarter of audits are not as good as they should be and we are keen to see an improvement in the overall profile,” it added.