The annual inspection of the six largest
accounting firms in the UK has indicated a concern over the level
of auditor scepticism in financial reports.

The individual inspection reports, which
include the Big Four, Grant Thornton and BDO, issued by the
Financial Reporting Council’s Audit Inspection Unit (AIU) found
most firms need to step up professional scepticism when assessing
the assumptions and other bases used particularly for fair value
measurement of assets and liabilities.

PwC was told to pay more attention to the
assessment of goodwill impairment, in particular the
appropriateness of key assumptions and the adequacy of related
disclosures while Ernst & Young (E&Y) was advised to ensure
there was substantial evidence for growth rates and other

This year eight audits, an increase of 3
compared with the previous year, have been indentified as requiring
significant improvements in relation to the sufficiency of audit
evidence for several key aspects of the audit this year.

Other issues identified were a lack of auditor
independence and E&Y was told to ensure the content assessment
of the quality of component members’ work on group audits.
According to the report, in one case an E&Y group audit partner
did not visit the main overseas location, despite it being a
requirement of the Big Four firms audit methodology.

Professional Oversight Board interim chairman
John Kellas said in a recent statement that further improvements
are still necessary where audit quality is concerned, despite
detecting year on year improvement.

“The current difficult economic climate will
throw up challenges for auditors, who will need to perform
consistently at their best to meet them,” he said.