A global survey of audit inspection findings released Thursday shows modest improvement over past years in the percentage of engagements with at least one inspection finding, but continued improvements in quality are needed, according to the International Forum of Independent Audit Regulators (IFIAR).
In IFIAR’s 2017 survey of 42 audit regulators across the globe, 40% of audit engagements inspected had at least one audit finding. That’s down slightly from 42% in the 2016 survey and 47% in the 2014 survey, which was the first one to track this percentage.
Meanwhile, IFIAR’s Global Audit Quality Working Group has seen progress towards its goal of improving the survey results for the six largest network firms. In 2015, the working group set a goal of lowering the number of audits with at least one finding among the six largest network firms to 29% or lower by 2019.
At the midpoint of that four-year goal period, the 2017 survey results show a 30% rate of findings among those six firm networks. That’s down from 39% in 2015. This improvement reflects several years of effort by the six firm networks and their member firms to address audit execution, according to the report.
Nonetheless, IFIAR reports that the survey results don’t precisely measure firms’ progress in improving audit quality, and are not the sole factor when considering developments in firms’ progress. The report also notes that progress has not been experienced in all jurisdictions at the same rate.
And although many firms have devoted significant resources to improving their systems of quality control, the survey has not demonstrated any definitive trends related to inspections of quality-control systems. The survey did show improvement in the percentage of findings of four of the five most troublesome audit areas, compared with 2016:
- Findings related to accounting estimates, including fair value measurements, fell to 29% from 32%.
- Findings related to internal control testing fell to 17% from 18%.
- Findings related to audit sampling fell to 13% from 17%.
- Findings related to revenue recognition fell to 7% from 13%.
The lone area among the five most troublesome audit areas to show an increase over 2016 was group audits, which rose to 13% from 11%.
The financial statement years represented in the 2017 survey varied by jurisdiction, as 15% reflected audits of financial statements with fiscal years ending in 2016, 53% with fiscal years ending in 2015, and 32% with fiscal years ending in 2014.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is an FM magazine editorial director.