The accounting watchdog has criticised Grant Thornton over its ‘unacceptable” record on public sector audits, after five out of six of the firm’s local audits were found to fall below the expected standard.
The Financial Reporting Council (FRC) singled out Grant Thornton and Mazars for criticism following a review of 15 major audits of health bodies and councils, saying that both firms’ “level of audit quality requires significant improvement”.
The watchdog reviewed six local audits by market-leader Grant Thornton, and found that five required improvement.
Both of the two reviewed audits by challenger firm Mazard were found to require significant improvements, while all three by Big Four firm EY were deemed to meet the required standard.
“The high percentage of major local audits requiring improvements is unacceptable,” said David Rule, the FRC’s executive director of supervision.
The local audit sector is coming under intense pressure as overstretched public sector budgets push auditors to accept lower fees, while the work of ensuring public money is being spent appropriately has become more complex as local authorities turn to more complex financial instruments in a bid to stretch limited resources.
A review into the sector by Sir Tony Redmond published last month found that “the local audit market is very fragile”.
Redmond warned that the sector’s “current fee structure does not enable auditors to fulfil the role in an entirely satisfactory way”, and proposed the creation of a new regulatory body to oversee local audits.
“High quality local audit is essential to providing local taxpayers and the wider public with an independent, impartial view of a local body’s financial statements and controls,” said Rule.
“We recognise the challenges in the major local audit sector and will be working with stakeholders on the Redmond review recommendations,” he added.
“As a leading provider of audit and related professional services to local authorities, we remain committed to the quality and integrity of our work,” said a spokesperson for Grant Thornton.
They added that Grant Thornton had taken steps to address concerns over its valuation of certain key assets, which the FRC identified as a concern.
“Mazars is committed to delivering the highest standards of audit quality,” a spokesperson for the firm said, adding that the auditor was “disappointed that the FRC has identified that two of our local audits required significant improvement”.
The firm said it had carried out “a root cause analysis focusing upon the matters identified by the FRC inspections”, which would be included in an upcoming plan for its local audit work “to ensure they are fully addressed”.