Watchdog warns audit firms to up their game and stop misleading

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Watchdog warns audit firms to up their game and stop misleading the public and shareholders

Beancounters must get better at flagging poor quality audits to avoid misleading shareholders and members of the public, the accounting regulator has warned.

The Financial Reporting Council (FRC) has found most accounting firms are failing to assess whether their audits of major companies are any good until after they have already published them.

Over the last few months alone, the FRC has launched probes into EY’s audit of scandal-hit hospital group NMC Health, after the company discovered a mountain of undisclosed debt, and PwC and EY’s audits of Thomas Cook, after the travel firm collapsed last year.

The Financial Reporting Council has found most accounting firms are failing to assess whether their audits of major companies are any good until after they have already published them

The watchdog has called for better use of so-called ‘audit quality indicators’ (AQIs), such as how much time is spent reviewing the judgements in the audit, how much of the work is done by senior staff, and how heavy each partner’s workload is.

It has called on firms to broaden the range of AQIs they evaluate, and report on them monthly.

The FRC’s executive director of supervision, David Rule, said: ‘Audit firms need a relentless focus on improving audit quality.

‘Public reporting of a consistent set of audit quality indicators is required to provide companies and investors another window on audit quality. 

‘It is clear that improvements are needed in this area and the FRC will be consulting on proposals in due course.’

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