Back in March, the International Forum of Independent Audit Regulators released its annual survey of inspection findings for 2017. IFIAR is a membership organization consisting of 52 independent audit regulators and this was their 6th annual survey of members' inspection results and programs. The survey provides general information (e.g. trends) about the members' inspection findings arising from individual inspections of audit firms in the six largest global audit firm networks (the big 4 firms plus BDO and Grant Thornton). Inspections address both firm-wide quality control systems and individual audit engagements. In 2017, 32 members reported the results of inspections of 111 audit firms systems of quality control.
As usual, the focus of this blog is findings related to independence and ethics. The following tables, extracted from the report, show recent trends:
This second table shows that for each independence "theme" the number of 2016 findings (far-right column) and 2017 findings (2nd column from the right):
Interestingly, a new addition to the independence findings related to failure to implement a reliable system for tracking business relationships. Tracking business relationships can be tricky under global (IESBA) and national codes, as they require proper identification of these relationships and maintenance of information related to the entities and individuals affiliated with attest clients. For example, SEC independence rules are particularly far-reaching (see Rule 2-01(c)(3) of Regulation S-X).
Otherwise, findings show a mixed bag of improvement and worsening across themes. The greatest uptick in findings were for failure to maintain independence due to financial relationships, failure to comply with partner rotation rules and failure to implement a reliable tracking system for business relationships, audit firm financial interests, and corporate family trees (including maintenance of such systems). Findings related to evaluating non-audit and audit-related services showed great improvement.