ASIC has found auditors may not be guaranteeing financial statements are free of misinformation, with a review by the watchdog showing a lack of justification for greenlighting reports across a number of audit areas.
The ‘Audit Inspection Report for 2017–18’ showed auditors at the six largest auditing firms did not obtain reasonable assurance that financial reports were free from material misstatement across 20 per cent of the 347 key audit areas.
The report covered a review of 20 firms, including the six largest with eight other national and network firms and six smaller companies, over January 2017 to 30 June 2018.
In comparison, auditors at the prominent players lacked reasonable assurance in 23 per cent of the audit areas in the previous 18-month period ending 31 December 2016.
Looking at 98 audit files from firms of all sizes, ASIC found auditors failed to guarantee freedom from misstatement in 24 per cent of the audit areas, a slight decrease from 25 per cent in the prior 18-month period.
Although the findings do not necessarily mean the financial reports audited were materially misstated, ASIC noted audit quality supports financial reporting quality and is in the interests of directors and audit committees to support the examination process.
“We recognise the efforts by firms to improve audit quality and the consistency of audit execution, which is reflected in some improvements in findings collectively for the largest six firms,” John Price, commissioner, ASIC said.
“However, the overall level of findings still suggests that further work and, in some cases, new or revised strategies, are needed to improve quality.”
ASIC said its inspections focus on higher risk audit areas, selecting more of the complex, demanding and challenging audits and some more significant or higher risk areas of the reports.
The regulator believes sustainable improvements in audit quality require a focus on culture and talent by firms, with all staff needing to brace improvement and being held accountable and firm leadership giving strong and consistent messages that it is not negotiable.
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