What makes a good audit? And Developments in Audit 2021

What does the report say?

This report identifies the key elements required by audit firms to ensure they are delivering high quality audit and highlights the six key attributes that contribute to the running of high-quality audit practices. Such as the culture, governance and leadership of the firms, alongside their investment in well qualified people, training and processes.

It also includes the key elements that contribute to high quality individual audits from the planning phase, through to the delivery and completion of audits. Areas highlighted include:

Risk assessment and planning

• Robust risk assessment
• Timely planning
• Knowledge and understanding
• Informed expectations
• Auditors’ responsibilities relating to fraud
• Appropriate resources
• Planning analytical review
• Planning the group audit
• Communicated to those charged with governance

Of particular note for risk assessment and planning is the FRC’s focus on the timeliness of planning and ensuring that the role of engagement quality control reviewers is clearly scoped and that are involved on a timely basis.

This section of the report also looks at how audit teams can ensure they have appropriate understanding of their clients, carry out effective planning analytical review, and manage group audits effectively.

Execution

• Fieldwork must execute the agreed audit plan
• Appropriate oversight and direction
• Proportionate approach to higher risk engagements
• Audit documentation tells the story
• Professional scepticism and challenge of management
• Specialists and experts appropriately involved
• Sufficient group oversight
• Consultation and oversight

Fundamental to the execution of audit fieldwork is the documentation of the work performed and how the audit team demonstrates that the necessary assurance has been obtained.

The report reminds auditors that there needs to be a “stand back mechanism built into the audit” to ensure that results of testing are considered in the overall context of the entity.

This section also focusses on professional scepticism and creating an audit team environment that empowers team members to ask questions and challenge, as well as seeking consultation where necessary.

Completion and reporting

• Assess that sufficient, appropriate audit evidence has been obtained
• Communicate matters of interest

The report reminds auditors of the importance of ensuring that appropriate audit evidence has been obtained and that they must communicate with those charged with governance in a timely manner.

The report includes helpful and detailed ‘examples of good practice’ seen by the FRC in the course of its reviews.

Other areas the report covers

In addition to the considerations of good practice at an individual audit level, the report includes a section looking at the key attributes of a high quality audit practice, ranging from governance and leadership, through to performance and quality monitoring, resourcing, and information and communication.

There is a focus on the culture of an audit practice and how this embeds quality into the fabric of the firm’s approach to audit work.

The FRC have also published ‘Developments in Audit 2021 (7.5mb pdf)’ outlining the key areas of the FRC’s work in the audit sector over the 2020/21 reporting cycle. The report is split into four areas covering the FRC’s work, findings from audit quality reviews, developments in the audit market, and restoring trust in the audit market.

Headline statistics from audit quality reviews indicate that 67% of audits required no more than limited improvements, an increase from 62% in 2019/20, although this reinforces the messaging from the FRC that improvement in the quality of audit continues to be required.

How can Mercia help?

For further details attend one of audit update courses where we will highlight the areas that make a good audit in more detail.

The above points are the focus of our file review services and are available to support your firm in remaining up to date and compliant.