The International Forum of Independent Audit Regulators has reported “mixed results” in a progress report on its efforts to improve audit quality.
In its sixth annual survey of member regulators’ inspections of the six largest audit firm networks, IFIAR said the audit deficiency rate identified through inspections of public company audits “is trending downward on an overall basis.”
The organization has challenged audit firm networks to achieve a decrease of at least 25% over four years in the percentage of inspected audits that have at least one deficiency.
For 2017, the survey data showed that 30% of audits inspected by IFIAR’s General Audit Quality (GAQ) Working Group members had one deficiency or more, bringing the deficiency rate very close to the 25% reduction target of 29%.
But IFIAR still believes that the rate of findings remains too high.
“Progress is not experienced in all jurisdictions at the same rate and no definitive trends have been noted for findings arising from inspections of firm-wide systems of quality control,” the report said. “These mixed 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.”
As far as inspections of 111 audit firms’ systems of quality control, the number of firms with at least one deficiency increased in 2017 for all but one quality control inspection theme, after declining in the two previous years.
Inspections of 918 audits performed by 120 audit firms yielded at least one deficiency in 40% of the inspected audits.
The two areas with the highest rate and greatest number of deficiencies in the 2017 survey were accounting estimates, with most deficiencies related to failure to assess the reasonableness of assumptions, and internal control testing, with the most common type of deficiency being the failure to obtain sufficient persuasive evidence to support reliance on manual internal controls.
Revenue recognition has historically been a high-deficiency area, but in 2017 deficiency levels were comparatively low, IFIAR said.