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The Professional Oversight Board, part of the Financial Reporting Council, has today published its Annual Report on Audit Quality Inspections undertaken in 2011/12. This report contains a number of key messages including:
A continued improvement in overall inspection results as indicated by a further reduction in the audits assessed as requiring significant improvements.
Evidence that audit efficiency is becoming progressively more important to audit firms, as a consequence of pressure on fees and costs.
Any effect of changes in behavior promoted by firms to reinforce professional skepticism in their audit work has yet to be reflected in our findings.
This report is primarily directed at audit firms. It should also be of interest to audit committees, as it highlights a number of findings which may assist them in the important contribution they make to the quality of auditing. Matters relevant to audit committees include the potential effect of fee reductions on audit quality, how audit committees might encourage the application of professional scepticism and their support for auditor independence.
John Kellas, Interim Chairman commented: “Audit makes a valuable contribution to the quality of financial reporting. Audit firms are committed to high quality audits, and demonstrate this by the considerable resources they invest in policy development and training. The challenge remains to ensure consistent implementation of standards at all levels throughout the firms, and to achieve improvements sufficiently quickly. We have noted a number of cases where the firms have taken action to deal with matters raised, such as skepticism, but where it is not yet clear that the initiatives have borne fruit. At the same time, firms are under considerable competitive and economic pressure to be more efficient. There is a consequent risk that quality will be compromised and firms, with the support of audit committees, must not allow this to happen”.
Source: Professional Oversight Board
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