ICAEW has criticised the Audit Quality Review (AQR) process, as the Financial Reporting Council (FRC) issues its latest inspection report.

The AQR results 2020/21 state that almost a third of the company audits examined by the FRC failed its quality test or did not meet expectations.

The issue with the AQR is that the focus is on the wrong factors, says Iain Wright, ICAEW’s Managing Director, Reputation and Influence. “It is absolutely right to inspect the work of audit firms and hold them to account. We want to see better audits in a resilient market, with greater competition and choice for businesses. However, in its present form, the FRC’s annual Audit Quality Review process has lost its way.” 

The government is considering its next steps for the reform of audit and corporate governance, in response to the BEIS white paper, which set out a number of reforms. Robust regulation is key to helping maintain trust and confidence in business, says Wright. “We urge Ministers to ensure that the FRC’s successor, ARGA, is established as the kind of forward-looking improvement regulator envisaged by Sir John Kingman in his review nearly three years ago.”

QAD: general good practice in non-PIE audits

ICAEW’s Quality Assurance Development (QAD) findings on non-PIE audits were included in the report. Duncan Wiggetts, ICAEW Chief Officer, Professional Standards, says that in non-PIE audits, the findings show general good practice, with a very small number not meeting ICAEW’s standards. 

“While the QAD ratings for firms’ non-PIE audits suggest good practice is common, we are still concerned where we find audits requiring some or significant improvement,” says Wiggetts.

This does not mean the audit opinion was incorrect or financial statements were misstated in those cases, he says. “It is important firms understand where they fell short of the high standards ICAEW expects.

“In all cases where improvements were needed, robust action plans have been agreed with firms and their progress is being monitored. We continue to produce a range of educational resources, including educational training films, to help firms learn from others and improve audit quality.”

You can view ICAEW’s training films here.