The Financial Reporting Council’s Audit Inspection Unit (AIU) has found a lack of audit quality in some of the Big Four and mid-tier audits.
The AIU’s inspection report found most of the weaknesses were in exercising professional skepticism, ensuring auditor independence and in audits of multi-national groups.
The AIU also found that in the audits of three unlisted subsidiaries of overseas banks – out of 10 banks and building society audits reviewed – significant improvements are required.
Inspectors said in the majority of overseas bank audits reviewed the main cause for concern was the reporting of loan loss provisions and improvements were required.
The report also found “insufficient evidence” of the bank auditors’ ability to challenge the bank’s management and executives.
Professional Oversight Board interim chairman John Kellas said further improvements are still required in audit quality, 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.
The oversight body inspects policies and procedures of the Big Four, Grant Thornton, BDO and several smaller audit firms.
Half of the audits reviewed by the AIU in 2010/11 were assessed as good and limited improvements required.