The Financial Reporting Councils (FRC) latest Audit Quality Inspections of BDO and Grant Thornton (GT) found that a number of audits reviewed required significant improvement.

In its review of ten Grant Thornton audits, the FRC found five audits performed to a good standard with limited improvements required and two performed to an acceptable overall standard, but with improvements required.

The remaining three audits were deemed to require "significant improvement in relation to the sufficiency of audit evidence obtained."

Of these three, one related to financial assets and intangibles, another related to the carrying value of fixed assets, whilst the third was in respect to the loss of audit work papers, in particular relating to property valuations and the related quality control procedures.

In the final instance, the FRC did note that this was only an issue as the auditors did not follow the firm’s policy of backing up electronic audit files.

The FRC also pointed out that Grant Thornton had taken action to address issues found in the previous report, in particular highlighting Grant Thornton’s new ethics training.

Finally the report told Grant Thornton to ensure that the firm’s high growth strategy does not affect its audit quality.

Matt Cardiff, Grant Thornton’s head of audit, said he was "pleased" with the report, and added "We have already put in place a plan to address the additional findings raised on this inspection."

In its review of BDO, the FRC looked at seven of the firm’s audits.

Two audits were deemed to be of a good standard, three were considered acceptable and two required significant improvements.

These improvements were relating to a lack of appropriate involvement in the conduct of the group audit in one case, whilst the other case needed improving in regards to its audit of revenue, fixed assets and stock.

In addition, the FRC found that issues in audit of disclosures and related party transactions indentified in a previous inspection had not been resolved.

Furthermore, the FRC found issues with professional scepticism in several audits from both BDO and GT.

The FRC is anticipating publishing its individual annual Audit Quality Inspection of the big four by mid-June.

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Financial Reporting Council