On Friday, the Financial Reporting Council issued a thematic review on the subject of root cause analysis performed by audit firms relating to audit inspection findings (RCA).
The report is intended to provide insights and aid understanding of firms’ procedures, highlight areas of good practice and provide recommendations, to promote continuous improvement in audit quality.
Melanie McLaren, Executive Director, Audit, commented that,
“The FRC seeks to promote continuous improvement in audit; RCA helps to identify the underlying causes of matters affecting audit quality as assessed by the FRC and the firm’s internal inspections. Importantly, it provides a better understanding of how audits can improve and enables firms to implement targeted actions to help prevent issues reoccurring. It can also be a means of identifying good practice.”
The review, covering the six largest UK audit firms, identifies that all are improving their RCA process and some are more advanced than others. The FRC recommends that the firms improve planning and training on the process, consider using individuals and RCA techniques from outside the audit practice and adopt more consistent processes for investigating causes for internal and external inspections.
Notes to editors:
- The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We are the UK competent authority for audit and set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
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