Some audit work insufficient, inspection report finds

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Some Australian auditors are still having trouble doing the sums on asset values and impairment of certain kinds of assets and revenue, according to the results of an inspection report released by the Australian Securities and Investments Commission.

The corporate regulator does an annual review of a small sample of audits across the Big Four accounting firms and mid-tier practices that audit a large portion of the more than 2,200 entities listed on the Australian Securities Exchange.

These inspections are undertaken by the regulator to see whether there are deficiencies in the way specific audits are conducted by firms, with 45 sets of audit working papers that set out the level of work done and audit evidence relied on by auditors, getting the scrutiny of the corporate regulator this year.

Inspectors combing through the detail of audit working papers found that auditors had done insufficient work in 23% of 115 key audit areas and they failed to get reasonable assurance that financial statements were free from misstatement.

The result for the inspections done during the 2020-21 financial year was slightly better in percentage terms than the 24% of 156 key audit areas in which ASIC said it found problems in the reviews conducted for the 2019-20 financial year.

“The largest number of negative findings continued to relate to the audit of asset values and impairment of non-financial assets and the audit of revenue,” the corporate regulator said.

“Other areas of our findings included audit of inventories, investments and financial instruments, expenses and payables, and provisions.”

Deloitte, EY, KPMG, PricewaterhouseCoopers, Grant Thornton and BDO were the six largest firms that had their individual results published.

EY came ahead with the lowest percentage of issues detected in the eight files the regulator examined, with just 7% of key audit areas having findings. Its result in the previous year was 14% across 11 sets of working papers ticked and bashed by the corporate cop.

PricewaterhouseCoopers had an increase in the numbers of issues ASIC’s plods found in the deep dive of PwC’s eight sets of working papers. The firm was found to have 25% of key audit areas examined with findings for the 2020-21 financial year but 23% of the 11 sets of papers the year prior.

Deloitte showed some improvement in its report card from ASIC on audit quality. It went from recording 35% of key audit areas with findings in 2019-20 across seven sets of audit files to having only 29% in 2020-21 in the five sets of audit working papers examined.

KPMG had issues identified in 30% of key audit areas analysed by the corporate cop across eight sets of working papers earlier this year and that is up from 26% in 11 sets of working papers reviewed in the previous year.

Mid-tier firm Grant Thornton went from having 27%  of key audit areas with question marks over them in three sets of papers reviewed in 2019-20 to  45% for the three sets of audit papers reviewed during 2020-21.

Another mid-tier firm, BDO, had ASIC’s ruler run over it and its report notes that it recorded 20% of key audit areas examined in both 2019-20 and 2020-21 as having problems. BDO had three sets of files reviewed in both years.