ob体育 has today reported on the results from its audit firm inspections of 45 audit files across 14 firms (which included one large unlisted entity file at each of the largest six firms) in the 12 months to 30 June 2022. The audit files were selected from a population of over 2,100 companies listed on the ASX and large unlisted entities audited by the largest six firms.
ob体育 Commissioner Sean Hughes said, 鈥楢udit inspections are designed to promote audit quality and high-quality financial reports. ob体育 encourages audit firms to continue to focus on improving audit quality, which will in time improve the overall level of findings. As we announced in July 2022 (see 22-172MR), ob体育 will commence routinely communicating negative findings from its reviews of audit files to directors, to further improve the quality of financial reporting.鈥�
鈥楩or the first time our report includes two case studies of good practice in the areas of the audit of revenue and the audit of asset values and impairment of non-financial assets. These are areas where we have historically had large numbers of negative findings. We expect these case studies will help auditors to improve their audit processes in these areas,鈥� said Mr Hughes.
As ob体育 reviews only a small sample of audit files on a risk-assessed basis, there will always be variations in negative audit findings from year to year. However, ob体育 expects all audit firms to focus on audit quality. They must identify and address the root cause of negative findings and develop and implement action plans to foster an effective and sustainable audit quality system.
While the most recent inspections have shown an overall raw increase in negative findings, this does not mean that the financial reports audited were materially misstated. Rather, in ob体育鈥檚 view, the auditor may not have a sufficient basis to support their opinion on the financial report. The increase in negative findings is potentially due to ob体育鈥檚 focus on a small number of high-risk audits and higher risk key audit areas within these audits, as well as the inclusion of audits of large unlisted entities and the impact of COVID-19 conditions.
顿辞飞苍濒辞补诲听
- Report 743 Audit inspection report: 1 July 2021 to 30 June 2022 (REP 743)
Report 739 Root cause analysis: Audit firm thematic review
ob体育 recently published Report 739 Root cause analysis: Audit firm thematic review (REP 739), following its review of root cause analysis on negative audit quality findings conducted by the largest six audit firms. The report also included our observations and better practice considerations of the largest six firms鈥� approaches to root cause analysis of negative findings.
ob体育 was encouraged that the largest six audit firms demonstrated many good practices in their voluntarily conducted root cause analysis as part of their existing quality control systems.
To ensure that the right remedial actions are introduced to improve audit quality, it is important that all audit firms conduct an objective, thorough and timely root cause analysis on negative audit quality findings to identify and address the real underlying root causes of any deficiencies.
Individual firm reports
The largest six audit firms, where most of our inspection effort is directed, audit 95% of more than 2,100 ASX-listed entities based on market capitalisation.
Below are the individual firm reports for this year:
- Report 744听BDO firms in Australia: Audit inspection report鈥�1 July 2021 to 30 June 2022 (REP 744)
- Report 745 Deloitte Touche Tohmatsu Australia: Audit inspection report鈥�1 July 2021 to 30 June 2022听(REP 745)
- Report 746 Ernst & Young Australia: Audit inspection report鈥�1 July 2021 to 30 June 2022听(REP 746)
- Report 747听Grant Thornton Australia Limited: Audit inspection report鈥�1 July 2021 to 30 June 2022听(REP 747)
- Report 748听KPMG Australia: Audit inspection report鈥�1 July 2021 to 30 June 2022听(REP 748)
- Report 749听PricewaterhouseCoopers Australia: Audit inspection report鈥�1 July 2021 to 30 June 2022听(REP 749)
Overview of audit file reviews 鈥� key statistics at a glance
2,175
Number of ASX listed entities
3,224
Total number of registered company auditors
14
Audit firms inspected
18
Number of industry groups covered by files inspected
45
Audit files reviewed
18
Files with no negative findings
146
Key audit areas reviewed
94
Key audit areas with no negative findings
4%
All audit firms' percentage of negative findings increased
9%
Largest six audit firms' percentage of negative findings increased
Background
ob体育鈥檚 audit inspections aim to promote improved audit quality. ob体育鈥檚 reviews focus on audits of listed entities, significant public interest entities or other unlisted entities of interest.
Audit inspections are one of our activities directed at promoting high-quality financial reports. Other ob体育 activities to support financial report quality include its financial reporting surveillance program, auditor surveillances and enforcement actions. This is separate to our inspections, investigations into corporate collapses and addressing matters from complaints and other intelligence. ob体育's audit inspection reports do not incorporate findings from these other activities.
ob体育 notes that a limited number of audit files are selected for review applying a risk-based approach, and as a result ob体育 would not expect these negative findings to be replicated in all audit files across the entire market. Caution should be exercised before broadly extrapolating the results of the inspections of 45 audit files.
Supplementary information supporting our audit inspection program can be found in the following publications:听
- Report 739 Root cause analysis: Audit firm thematic review听(REP 739)
- Regulatory Guide 260 Communicating findings from audit files to directors, audit committees or senior managers (RG 260)
- COVID-19 implications for financial reporting and audit: Frequently asked questions (FAQs)
- Information Sheet 196听Audit quality: The role of directors and audit committees (INFO 196)
- Information Sheet 222听Improving and maintaining audit quality (INFO 222)
- Information Sheet 223听Audit quality 鈥� The role of others听(INFO 223)
- Information Sheet 224听ob体育 audit inspections (INFO 224)