Audit Quality: Why It Matters

Conducting a high-quality audit is not just about the audit itself, but just as much about how well the audit practice is run 

FRC: What Makes a Good Audit?

A changing landscape

High-profile audit failings in recent years, such as those surrounding Carillion, Patisserie Valerie and BHS, served to shine a spotlight on audit quality and led to calls for significant reform of the audit industry.

The replacement of the FRC with ARGA, the introduction of ISQMs 1 & 2 and the issuing of revised ISAs such as ISA 220, 315 and 240 all have audit quality in mind. Improving audit quality is at forefront of the profession and needs to be addressed seriously by firms of all shapes and sizes.

Although the headline-grabbing failings usually involve larger audit firms, the reforms taking place will impact all firms who carry out audits and firms of all sizes will need to ensure they are compliant.

Whilst only a relatively small number of audits receive the levels of public attention and scrutiny as the three listed above, they are not isolated incidents in an otherwise perfect system. With the results of the FRC’s Audit Quality Reviews in 2021/22 finding 29% of reviewed audits to be either requiring improvements or requiring significant improvements.

Similarly, the results of the ICAEW’s Audit Monitoring Report for 2021/22 found 24% to be either requiring improvements or requiring significant improvements. As a result of the review visits, ICAEW also handed down penalties to 24 firms and withdrew 8 audit registrations.

Not only are auditors facing a changing landscape but they are also auditing within a different environment.

Since the Pandemic, there has been a significant move towards using Technology within the audit process and attention has been drawn by Sir Donald Brydon in relation linking technology and audit quality.

In December 2020, the FRC undertook a consultation on Technological Resources: Using Technology to enhance audit quality. Almost all respondents agreed that the use of technology could significantly improve audit quality, when deployed at the right time in the audit process and, crucially, by those with the right training.