Global group targets 25% cut in deficient audits

A GLOBAL audit quality group of which Singapore is a participating member is looking to implement a measurable target to address persistent levels of deficiencies in public company audits.

International Forum of Independent Audit Regulators' (IFIAR) global audit quality working group is leading an initiative targeting at least 25 per cent reduction in the number of listed public interest entity (PIE) audits with inspection findings within the next four years.

The IFIAR initiative was jointly drawn up with the agreement of the six largest global network audit firms - BDO International Ltd, Deloitte Touche Tohmatsu Ltd, Ernst & Young Global Ltd, Grant Thornton International Ltd, KPMG International Cooperative, and PricewaterhouseCoopers International Ltd.

The initiative is a follow-through from the release of the fourth global survey of audit inspection findings by IFIAR. IFIAR's 2015 survey of findings from the inspections of the six named global network audit firms indicates 43 per cent of inspected audits of listed PIEs had at least one inspection finding during the survey period.

"While this is a four percentage point drop in deficient audits over last year, IFIAR is not satisfied that enough has been done by the audit profession to understand and address shortfalls in audit quality," said Janine van Diggelen, IFIAR chair and head, International Auditing and Accounting, Policies and Standard Setting, Netherlands Authority for the Financial Markets (AFM).

The survey also found the highest number of audit inspection deficiencies in the areas of internal control testing, fair value measurement, risk assessment, and revenue recognition - topics among the core building blocks of audited financial statements.

Ms van Diggelen noted the survey outcomes "continue to show a lack of consistency in the execution of high-quality audits and highlight concerns over the robustness of the firms' internal quality management systems".

Accounting and Corporate Regulatory Authority's (Acra) chief executive Kenneth Yap applauded IFIAR's new audit quality target: "By committing to a tangible target, IFIAR and the global audit firms have demonstrated their determination to continually raise audit quality across the board."

"Acra fully supports our fellow audit regulators in this common drive to raise the bar for audit quality, which will bode well for market assurance and investor confidence," Mr Yap added.

Currently, under Acra's annual audit inspections, audit firms in Singapore have been required to identify the root causes pertaining to the inspection findings and ensure appropriate remediation plans are subsequently in place.