ICAEW publishes audit monitoring report

On 12 September, the ICAEW published its audit monitoring report for 2023/24, which is based on the 476 audit monitoring visits it conducted that year to the end of March.

The nature of the review cycles means the firms covered each year varies and so the results for this latest year are not entirely comparable with those from prior years. Although, with such a large sample size, high-level comparisons can be made.

Headline numbers

Of the reviews carried out, 71% were deemed ‘good or generally acceptable’, which is in line with the results of the prior-year report, although this is still falling behind the levels generally seen before the Covid pandemic.

This percentage rose to 88% when only considering firms classed as Tier 1 firms by the FRC. These are the largest firms which carry out PIE audits, although only non-PIE audits are in scope for ICAEW’s reviews. Although this figure is higher than the average for all firms reviewed, it is a noticeable decrease from the 95% seen for Tier 1 firms in the prior year.

This contrasts with FRC Tier 2 and 3 firms, which saw an increase in their percentages from 72% to 79%, although this is still lagging significantly behind Tier 1 firms. Meanwhile, the decrease in their audits requiring improvement (28% down to 5%), is offset by the increase in the number requiring significant improvement (0% up to 16%).

On the other side of the coin, the proportion of audits across all firms reviewed which require improvement has held reasonably steady at 21%, although the number requiring significant improvement continues its recent climbing trend and is now at 8%.

Similarly, the number of reports made to the Audit Registration Committee for consideration of regulatory action following a review visit has also been on an upwards trajectory in recent years and has now risen to 12%.

What’s behind the numbers?

Ongoing changes to the audit market mean some of the findings are not surprising, with the most significant changes in recent years being the introduction of ISQMs 1 & 2, and the general trickling down of some audits from the Big 4 to mid-tier and smaller firms.

The former should result in improvements in audit quality across the board, whilst the latter may very well lead to decreases in certain firms, as more complex audits are being taken on by firms which may not be as experienced in those areas.

Specifically, the ICAEW have highlighted a certain type of audit as being particularly challenging for smaller firms who pick them up from the Big 4: group audits involving a UK holding company with substantial foreign operations. Smaller firms may particularly struggle to effectively engage with overseas component auditors or may not fully appreciate the stringent requirements of the revised ISA (UK) 600 in this scenario.

What to expect

In addition to the continued impact of the implementation of ISQM 1 and the movements in the audit market, the revisions made to the ICAEW’s CPD regulations will, in principle, lead to greater emphasis being placed on partners and staff keeping their technical knowledge and skills up to date, which should in turn lead to higher quality audit work being produced.

Therefore, we can perhaps expect more positive findings from the audit monitoring reports in short term as these changes flow through into the work being carried out, although only time will tell.

How Mercia can help

Mercia offers a range of training courses, support products including manuals to aid compliance with the regulations and offers a comprehensive technical query service for advice on your specific circumstances.

Our suite of live courses and on-demand training include topics such as ISA (UK) 600, which can be helpful if you are considering taking on group audits or if you simply want a refresher on the requirements when acting as group auditor.