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.