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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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