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Overall audit quality, including those at the big four accounting firms, dropped this year despite greater scrutiny, as ASIC pledges to adopt a stricter regulatory approach.
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ASIC puts firms on notice as audit quality falls
13 December 2019
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ASIC’s latest audit inspection found adverse findings in 26 per cent of audit files reviewed across firms of all sizes in the 12 months to 30 June 2019, up from 24 per cent in the 18 months to 30 June 2018.
Revealing individual scores for the big four accounting firms for the first time, ASIC found that 33 per cent of KPMG’s files were considered to be inadequate, up from 21 per cent from the previous inspection period.
PwC also went backwards, with 18 per cent of its reviewed audits lacking assurance that the financial statements were free from error.
Deloitte and EY both maintained their previous results at 32 per cent and 22 per cent, respectively.
ASIC maintains that adverse findings do not necessarily mean that the financial reports audited were materially misstated. Instead, it believes the auditor did not have a sufficient basis to support their opinion on the financial report.
The corporate regulator found that the largest number of adverse findings came from the audit of asset values, particularly impairment of non-financial assets and the audit of revenue.
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“While firm action plans to improve audit quality remain important, the continuing overall level of adverse findings from our audit files reviews needs to be addressed. ASIC will adopt a more intensive supervisory and regulatory approach in this regard,” said ASIC Commissioner John Price.
To promote improvements in audit quality, ASIC will implement its “why not litigate” approach to auditor conduct matters and review conflicts of interest, culture, talent, governance and accountability for audit quality at the largest six audit firms.
ASIC believes audit firms need to place a greater focus on culture, by ensuring all partners and staff embrace the need to improve audit quality and the consistency of audit execution, ensuring that all partners and staff are accountable for their roles, and having firm leadership to send a message that “audit quality is not negotiable”.
ASIC’s latest audit inspection results come after the six largest audit firms disclosed their individual results earlier this year.
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