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FRC: FTSE 350 audits improved with further action needed to deliver consistent improvement

The quality of audits of FTSE 350 companies in the UK is improving, according to the latest audit reviews undertaken by the Financial Reporting Council (FRC). 81% of FTSE 350 audits reviewed in 2016/17 were categorised as requiring no more than limited improvements, compared to 77% in 2015/16 and 70% in 2014/15. The FRC has set a target that at least 90% of FTSE 350 audits reviewed should require no more than limited improvements by 2018/19.

A higher proportion of audits reviewed outside the FTSE 350, however, required more than limited improvements. As a result, the FRC reports no overall change this year in audit quality across all the audits it reviewed.
The FRC has today issued reports on the largest six audit firms – BDO, Deloitte, EY, Grant Thornton, KPMG and PwC. They set out identified areas of good practice, key areas requiring improvement and the actions each firm, having carried out root cause analysis, proposes to take.

Some of the improvements underpinning audit quality that the FRC has seen are:

  • Firms’ leaderships implementing or further developing significant firm or network-wide audit quality improvement programmes.
  • Adoption of better guidance and training on the use of specialists.
  • Actions to embed the use of data analytics in the audit.
  • Better evidence of the involvement of the Engagement Quality Control Review partner and audit technical reviewer.
  • Strengthened internal monitoring arrangements.

Key areas identified by the FRC where further improvement is required and the firms plan actions include:

  • Challenge of management in key areas involving judgment, such as impairment reviews, asset valuations and provisions. 
  • The design and execution of audit procedures relating to revenue recognition.
  • Systems and arrangements for ensuring compliance with ethical and independence requirements.

 Melanie McLaren, FRC’s Executive Director for Audit and Actuarial Regulation, said,

“High quality audit underpins public trust and confidence in business. Audit firm leaderships’ focus on audit quality is a key driver of good audits and is vital to promoting a culture of continuous improvement.
While the progress made by individual firms differs, all firms are investing in audit quality and have set out further action to improve.”

Notes to editors:

  1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.  The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the Competent Authority for audit in the UK, the FRC sets auditing and ethical standards and monitors and enforces audit quality.
  2. The FRC intends to publish, in July 2017, its annual Developments in Audit report, which will provide additional commentary on the outcome of its 2016-17 audit inspection work, as part of a broader description of the UK audit market and the different strands of the FRC’s work as competent authority for audit in the UK.
  3. All Press enquiries should be directed to:
  • Peter Timberlake, Head of Communications, on telephone: 020 7492 2397/ 07768 502332, or email: p.timberlake@frc.org.uk.
  • Rita Carolan, Communications Manager, on telephone: 020 7492 2307/ 07428 149096 or email: r.carolan@frc.org.uk.
  • Alana Sinnen, Communications Manager, on telephone: 020 7492 2395/ 07949 005526 or email: a.sinnen@frc.org.uk.

Related Resources

Audit Quality Inspection reports 2017

 

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