Audit firms have been struggling with audit quality over the last year, resulting in a record number of fines for poor performance. Too many years with a work-from-home mentality is probably starting to take its toll. Actually, there could be a pandemic knock-on effect here, but either way, auditors need to improve the quality of their work.
Internal reviews of audit work failed to spot poor quality work, such as not properly checking certain financial transactions, according to the settlement.
Key failures sited by the regulators include some of the following:
▨ Auditors aren't asking enough of the right questions
▨ Failing to properly flag matters of concern
▨ Auditors rely on inadequate audit evidence to issue their reports
▨ Auditors include unqualified opinions
▨ Auditors signed off on an audit after finding materials flaws
In one case auditors missed a $300 million fraud by ignoring red flags during an audit process, is such a gross oversight that the audit in question should be classified as a total failure.
Accounting Firms hit with fines | FT
Many solutions can address this drop in audit quality, including approaching an audit using proven RIsk-Based Audit principles that connect objectives to risks and identifying key material risks so that audits can be prioritised at a preliminary level. Additionally, auditors should look to establish an Audit Quality Scorecard that assesses the completeness and effectiveness of the audit.
In Causal Capital, we run masterclasses to help auditors lift their audit quality specifically and we're planning on developing an AQS for auditors as part of our audit learning toolkit — more information to follow shortly.