International Regulatory Org. Reports Continued High Number of Findings Re: Independence

MARCH 28, 2017    RECENT DEVELOPMENTS

The International Forum of Independent Audit Regulators (IFIAR) issued its fifth annual survey of its members' findings related to inspections of audit engagements and firm-wide quality controls. (IFIAR is a membership organization of audit regulators that are independent from the audit profession; the survey relates to members' inspection findings of the 6 largest international audit networks' audits of public interest entities (PIEs) and systematically important financial institutions (SIFIs.)

Noting a general trend of decreased rate of findings for firmwide quality control, IFIAR remained troubled by, among many other findings, members reporting that forty (40) percent of the firms had at least one finding related to quality control over independence and ethics. Over half of those findings related to two issues: (1) firms' failure to evaluate nonaudit services provided to audit clients and (2) failure to effectively monitor partner and staff's personal independence requirements. 

Findings  relating to audits of PIEs included:

Accounting Estimates, including Fair Value Measurements – Failures to assess the reasonableness of assumptions including consideration of contrary or inconsistent evidence, where applicable.

Internal Control Testing – Failures to (1) obtain sufficient persuasive evidence to support reliance on manual internal controls,  (2) sufficiently test controls over, or the accuracy of completeness of, management data or reports, and (3) sufficiently test information technology general and application controls.  

Revenue Recognition – Failures to appropriately assess and respond to the risk of fraud.

Of SIFI audits, the percentage of audits with at least one finding (among other results) was in the following areas:

  • Fraud procedures -  16%
  • Insufficient challenge and testing of management’s judgments and assessments – 14%