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

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