Big Four auditors do not apply enough professional scepticism and consistency in audit procedures, according to the UK audit watchdog.
The number audits requiring ‘significant improvements’ is also too high and there are concerns over current safeguards to ensure non-audit services do not conflict with audit work.
The Audit Inspection Unit (AIU), the inspection arm of the Financial Reporting Council, handed down its verdict following the inspections of all the Big Four accounting firms.
The overriding sense is that audit quality policies and procedures are up to scratch but too many improvements are still required.
Ernst & Young had no audits that were deemed exceptionally poor, PwC had one that required significant improvement, while Deloitte and KPMG had two.
At Deloitte, the AIU identified weaknesses in the audit evidence obtained, specifically in relation to goodwill and other intangibles, the evaluation of going concern and pension scheme audit.
The AIU also indentified two instances where non-audit services provided to audit clients by Deloitte breached principles in ethical standards.
KPMG was criticised by the AIU for signing off incomplete audits and making changes, including balance sheet changes, to accounts after signing and before printing in some instances.
There were independence issues on three KPMG audits where partners or staff had been involved in the audit in senior positions for more than seven years.
In the AIU’s inspection of the PricewaterhouseCoopers, it found one audit required significant improvements in support of audit judgments on the evaluation of goodwill impairment.