The UK Financial Reporting Council (FRC) has said it will launch a specific review in the second quarter of 2014 to address the quality of bank and building societies audits, as it acknowledged improvements have not been sufficient in the aftermath of the financial crisis.

In a report outlining the regulator’s priorities for 2014 and 2015, the FRC stated that in light of its inspections audit quality continued to show an improvement, particularly among the very largest listed companies.

However the FRC warned that it "remains variable overall and needs to improve in the banking sector in particular".

"The value of audit also continues to be questioned, not least as a result of the financial crisis."

In a statement the FRC said its 2013 Audit Quality Inspection report identified as a key concern the need for improvements in the quality of auditing of financial institutions.

"Specific issues highlighted were the adequacy of the testing of loan loss provisions and general IT controls. Early indications from the latest cycle of audit inspections suggest that it is unlikely that the FRC will be able to report that significant progress has been achieved," the regulator said.

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By GlobalData

For that purpose the FRC said the review will focus on testing if audit firms have taken effective actions to address issues identified in its inspections of banks’ audits.

The FRC also said it aims at discussing with the chairs of audit committees of banks and building societies how they can reinforce the quality of corporate reporting and audit in the sector.

"The review will aim to assess the extent to which the firms’ actions to address the FRC’s concerns are having an impact and if not, identifying what further action is required," FRC chairman Baroness Hogg said.

The FRC added that it is announcing this review now to let firms and companies know what its expectations are ahead of next year’s audit season.

By the end of 2014 the accounting regulator expects to publish a report with the findings of the specific review.

Related link

The UK Financial Reporting Council