Audit quality needs enhancing

The Australian Securities and Investments Commission’s (ASIC’s) inspection of audits for 2015/16 found auditors did not obtain reasonable assurance the firms’ financial report was free of material misstatement in a quarter of the key audit areas.

The ‘Audit inspection program report for 2015-16’ found that in 25 per cent of the 390 key audit areas reviewed by the corporate regulator on a risk basis across 93 files in the 18 months to 31 December 2016, auditors were not assured the financial report was without misstatement, up from 19 per across 463 key audit areas in the 18 months to 30 June 2015.

“ASIC findings do not necessarily mean that the financial reports audited were materially misstated,” ASIC said.

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“Rather, in ASIC’s view, the auditor did not have a sufficient basis to support their opinion on the financial report. We did not report on areas where auditors perform beyond the relevant standards and so, to that extent, the report does not represent, balanced scorecard.”

The report said audit firms should pay particular attention to:

  • The audit of asset values, particularly impairment of non-financial assets, including challenging the reasonableness of any forecasts, key assumptions, and the basis of valuation;
  • The audit of revenue, including accounting policy choices, substantive analytical procedures, and tests of detail; and
  • Maintenance of a strong culture of audit quality, including firm leadership, setting expectations, coaching, strong review processes, and effective accountability procedures.

Most of the findings related to accounting estimates such as impairment assets, and accounting policy choices such as revenue recognition.

Revenue and renewables was a key audit area chosen for the review, with 90 firms chosen, with most of the findings concerning the audit of asset values and revenue and receivables (30 cases or 34 per cent, up from 15 cases or 16 per cent in June 2015).

ASIC Commissioner, John Price, said: “Given the efforts by firms to improve audit quality and the consistency of execution of audits, this is a disappointing result”.

“The findings suggest that further work and, in some cases, new or revised strategies are needed to improve quality.”

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