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May 9, 2012

AIU reports call for improvements to independence

The Audit Inspection Unit (AIU) has flagged professional scepticism as a deficiency and criticised firms that reward audit staff who sell non-audit services in its inspection of four UK firms.

The UK audit watchdog, a part of the Financial Reporting Council, inspected PKF, Baker Tilly, Mazars and Crowe Horwath calling on auditors to “give increased focus and attention to ethical matters”.

The AIU reviewed six of the Baker Tilly’s audit engagements between March 2009 and December 2010, noting the firm had improved its performance compared with the previous year.

The AIU pointed out as the main deficiency the case of a client service partner who had previously been involved in the audit but continued to attend audit committee meetings.

“This may give rise to a perception that he is able to exert inappropriate influence on the conduct and outcome of the audit. In addition, it was inappropriate in such circumstances for the partner to have accepted significant hospitality from the client on a number of occasions during the year,” the reports says.

The AIU invited PKF UK to increase focus and attention to the audit of impairments and disclosures, following an inspection of the firm’s 2010 work. In the seven PKF audits reviewed, the inspection unit identified flaws in “ensuring sensitivity calculations are obtained from the audited entity and appropriate audit procedures are performed”.

The AIU report identified the provision of multiple non-audit services as a potential threat to PKF’s independence and recommended the firm not give credit in staff appraisals for success in selling non-audit services.

Similarly with Mazars, the AIU said the firm needs to ensure that staff and partner remuneration and evaluation decisions do not reflect success in selling non-audit services to audit clients.

The AIU specified the need to give increased focus and attention to the audit of going concern and the need to perform appropriate audit procedures to evaluate this assessment and the adequacy of related disclosures.

Of the four audits, examined one was said to require “significant improvement in a number of areas”.

Crowe Horwath Whitehill was picked up on for inadequate training. In respect to inspections conducted from March 2011 to April 2011 and from October 2011 to December 2011, the AIU said nearly 25% of the firm’s qualified staff and partners, failed to attend one of the two mandatory audit courses in 2010.


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