Audit inspector warns against cost-cutting

How good are company audits?  THE ORGANISATION responsible for ensuring big accountancy firms do their job properly has warned the quality of company audits is under threat from cost-cutting measures.

“We see lots of examples of firms managing margins by changing approach and these make the audit less precise and may have an adverse effect on quality,” Paul George, executive director of conduct at the Financial Reporting Council’s (FRC) told City A.M.

He also warned some auditors are still trying to curry favour with their bosses by selling additional services to companies, despite guidelines banning such activity.

“All firms have measures in place but staff still believe they can gain credit,” he explained.

George was speaking ahead of today’s release of the FRC’s annual report on the quality of audit inspections, which showed a general improvement, especially among FTSE 350 companies.

Eighty-five per cent of company audits inspected by the regulator were found to be “good” or “acceptable with limited improvements required” but 15 per cent of audits were considered to need significant improvements.

The report also found that companies need to increase their levels of professional scepticism and warned against the difficulties of auditing “letterbox companies” who are registered in the UK but have their main operations overseas.

The audit market is currently being investigated by the Competition Commission and George said more information on rival accountancy firms should be made available: “One of the reasons we went to public reporting on an individual firm basis is that we were of the view that it acted as a counterbalance to the view that quality equalled Big Four.”