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December 20, 2009

Watchdog urges firms to tighten provision of non-audit services

The UK’s Audit Inspection Unit (AIU) has called for greater care providing non-audit services, more clarity on auditor rotation rules and for firms to focus on audit risks – particularly around going concern – in its annual inspection of the UK audit profession.

The AIU published its overview of the UK industry alongside inspections of Baker Tilly UK, BDO UK, Deloitte UK and Ernst & Young UK (E&Y). The reports follow four inspection reports published in November.

The AIU said overall audit quality was sound but firms needed to exercise greater care in assessing whether it was appropriate for them to provide certain non-audit services to audit clients. This issue was raised in the AIU’s report on Deloitte.

Using internal audit staff to carry out external audits was another area of concern. Three of the firms examined required further clarification of their guidelines. At one of these firms, the AIU concluded the manner in which internal audit staff had been used on a particular audit was inappropriate.

The AIU said E&Y and BDO had recurring issues relating to assessing and responding to significant risks and analytical review, which needed to remain a key focus.

The AIU reviewed 70 audits at major firms, excluding follow up reviews. Eight of these were considered by the AIU to require significant improvement in certain areas.

The regulator found evidence of firms increasing the emphasis on maintaining or improving financial performance in their explicit or implicit communications to audit personnel due to the current economic climate. The AIU is concerned this could lead audit personnel to compromise audit quality in order to maintain or improve the financial performance of the firm.

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