David Jetuah, Accountancy Age, Tuesday 14 September 2010 at 10:40:00

Audit Inspection Unit gives PwC mixed review questioning whether PwC issceptical enough on revenue recognition- a criticism which the firm stronglyrejects

PwC has received a mixed report from audit watchdogs, praising the firm forresolving issues, but also flagging up areas where improvements needed to bemade.

On the majority of work reviewed by the Audit Inspection Unit, PwC auditorsdid not identiify revenue recognition as a significant risk, a move the watchdogsaid was " inconsistent with Auditing Standards."

"More needs to be done by the firm to change the behaviour of audit teams
</br>and to encourage them to exercise greater scepticism in this area," the AIUsaid.

However PwC shot down any suggestion that there was an issue with the firmbeing too easy on clients.

"While there is passing reference to it in our report, we see no compellingevidence to support the view that there is a problem with professionalscepticism," said PwC's top auditor Richard Sexton.

"In reality, scepticism is applied in real time and is a cultural andbehavioural issue. It is, therefore, very hard to evidence after the event."

The AIU said the UK's biggest firm has generally made good progress in actingon findings from last year.

In particular, the firm had "put effort" into ensuring that audit teammembers were not set objectives or rewarded for selling non?audit services andinto improving the linkage between audit quality and remuneration.

However, 35% of PwC staff signing off audit reports are audit directors, withthe remainder being audit partners. This proportion has increased in recentyears and compares with 25% in 2006, the AIU said.

This comes in the context of PwC identifying in its internal review thatquality was less consistent on those audits where the engagement leader was anaudit director, compared with audits led by partners.

"At the time of our inspection, the firm was considering how best to addressthis issue," the AIU said.

"We agree that any apparent inconsistency in the quality of audits is aconcern and we will review how the firm has addressed this in next year?sinspection," Sexton said.

Sexton welcomed the AIU's findings but also stressed that the timing of theAudit Inspection Unit reports meant that issues PwC had acted on may only beobservable in two years' time.

"While we are fully committed to taking action to address your findings, thetiming of your work means that often the audits that you review have beencompleted before our receipt of the prior year?s AIU report.

"As a result, it can sometimes be the case that the impact of the actionsthat we
</br>take are not measureable until the next but one inspection. As such, therepetition of findings in two consecutive reports should not be construed as usfailing to act upon findings ? it may be a matter of timing."

"Our strategy is to continue to drive quality in everything we do, whilstalso seeking to improve the efficiency of our audit processes and tools,"Sexton added.

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