IAASA monitors seven of the larger audit firms directly and annually comments on their quality assurance systems and procedures, and on the outcome of their audit file reviews. The 2021 report identifies a number of issues that also have application in smaller firms. Audit files are graded 1 to 4, with 1 being ‘good audit with no concerns’ and 4 being ‘requires significant improvements’.
BDO had two audit files reviewed, both of which were scored grade 2 (‘requires limited improvements’). The audit of accounting estimates, documentation of control risk, and disclosure in financial statements were highlighted as areas to address.
The firm also had four matters identified in its audit quality systems, including one ‘significant deficiency’ in the operation of its internal ‘consultation process’ for difficult or contentious issues that arise during the audit.
Deloitte had six audit files reviewed, of which two were grade 1, three were grade 2 and one was grade 3 (‘audit that requires improvements’). There were no findings about the firm’s quality systems, but the audit of accounting estimates, cash, roll-forward auditing and financial instruments were raised as issues.
Robert Troy signalled his support for EU proposals for a new corporate sustainability reporting directive
EY also had six files reviewed. One was grade 1, four were grade 2 and one was grade 3. There were no findings about the firm’s quality systems, but the audit of financial statements disclosures, intercompany receivables and the audit approach to internal audit were identified as requiring improvement.
Grant Thornton had two audit files reviewed, scoring a 1 and 2. The quality assurance review identified some matters needing improvement in the areas of consultation and internal monitoring of quality control systems. Only one area was mentioned as a key recommendation and that was better documentation of the rationale for the identified key audit matters.
KPMG had six files reviewed, all of which scored grade 1. There was one matter raised about the firm’s quality systems – policies and procedures for internal consultations and differences of opinion.
Mazars had two files reviewed, both of which scored grade 2. There were no findings about the firm’s quality control systems, but the audit of cash, financial statements disclosures and going concern were identified as needing to be addressed.
PwC had six files reviewed. All six scored grade 1, and there were no findings or recommendations about the firm’s system of quality control.
The International Auditing and Assurance Standards Board (IAASB) has released a first-time implementation guide for ISA 220, Quality Management for an Audit of Financial Statements, designed to help auditors understand and properly implement the standard’s requirements. ISA 220 was issued by the Irish Auditing and Accounting Supervisory Authority (IAASA) in December 2021 for implementation for audits of financial statements for periods commencing on or after 15 December 2022.
Corporate social responsibility
In February this year, Robert Troy, minister for trade promotion, digital and company regulation, signalled his support for EU proposals for a new corporate sustainability reporting directive to revise the existing rules on non-financial reporting by companies. The directive:
- covers environmental, social, human rights and governance matters
- extends the scope to all large companies and public interest entities (banks, insurance undertakings and listed companies – ie those with at least 250 employees, and not just those with over 500 employees as currently) and listed SMEs (except listed micro-enterprises)
- requires the audit (assurance) of reported information
- introduces more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards under development by the European Financial Reporting Advisory Group (EFRAG) with simplified standards for SMEs
- requires companies to digitally ‘tag’ the reported information, so it is machine-readable and feeds into the European Single Access Point (ESAP) envisaged in the capital markets union action plan.
Discussions on the directive are expected in the European Parliament in spring 2022.