Audits still fail to challenge firms, FRC says

AUDITORS of major UK companies are still failing to challenge the information given to them with sufficient scepticism, a new report today shows.

Less than half the audits reviewed by the Financial Reporting Council in the past year were rated good, while 13.5 per cent required significant improvement.

The FRC’s Audit Inspection Unit (AIU) also admitted that “a rump” of auditors had not improved, while smaller accountancy firms struggled to audit large finance groups and companies with big international operations.

“I am confident that firms are definitely trying to improve their audit quality,” FRC audit director Paul George told City A.M. “But there is a rump of auditors that don’t seem to be improving and we may need more tools to reduce that further.”

The report added that some audits failed to question statements from company management. “The AIU has come across cases where management representations were the main source of audit evidence,” it said.

•The Financial Services Authority is investigating whether paying for trading order flow is an inducement and conflict of interest that may prevent investors from getting the best deal.