Late last week, ASIC issued a report on the results of inspections it carried out of 20 Australian audit firms of varying sizes, in the period 1 January 2017 to 30 June 2018.
It found that in 24 per cent of the total 347 key audit areas that it reviewed across 98 audit files, auditors did not obtain reasonable assurance that the financial report was free from material misstatement.
This compares to 25 per cent of 390 key audit areas in the previous 18-month period ended 31 December 2016.
“We recognise the efforts by firms to improve audit quality and the consistency of audit execution, which is reflected in some improvements in findings collectively for the largest six firms.
“However, the overall level of findings still suggests that further work and, in some cases, new or revised strategies, are needed to improve quality,” said ASIC commissioner, John Price.
In reviews of the audit files at the six largest firms, ASIC found that in one in five of the key audit areas, auditors did not obtain reasonable assurance that the financial report was free from material misstatement. This compares to 23 per cent in the previous 18-month period, ended 31 December 2016.
The commission explained that the findings do not necessarily mean that the financial reports audited were materially misstated. “Rather, in our view, the auditor may not have a sufficient basis to support their opinion on the financial report”.
ASIC also emphasised that its inspections look at a limited number of files and focus on higher risk audit areas and so caution is needed in generalising the results across the entire market. “We generally select some of the more complex, demanding and challenging audits, and some more significant or higher risk areas of the financial reports”, it said.
ASIC advised that firms need to focus on culture and talent in order to reach “sustainable improvements in audit quality”.
