Mario Christodoulou, Accountancy Age, Wednesday 22 September 2010 at 11:40:00

FRC to concerned about audit quality by small firms

The Department of Business will be asked to restrict small accounting firms from auditing complex companies, a senior regulator has said.

Paul George, director of the Professional Oversight Board, which sits within the Financial Reporting Council, said he will talk to the Department of Business (BIS) following the publication of a scathing report which found audits of multinational groups, undertaken by small accounting firms, ?required significant improvements in most cases?.

Only three of the eleven audits inspected required no improvement. The report recommended ?competency requirements? for auditors of listed and major companies to reduce the incidence of poor quality work.

George said he would be talking to government officials about the recommendations.

?What we think is there should be additional licensing requirements or competency requirements for audit and therefore that enables an additional control for the risk when firms are taking on audits that they do not need to do,? he said.

?The first step is to try and stimulate a debate on the topic and we will be talking to other stakeholders including those that could ensure a change took place, i.e BIS.?

He said audit failings were particularly high when firms inspected multinational firms, with bases in obscure countries.

He was also concerned accountants were helping to prepare financial statements, then going on to audit them.

?The other particular challenge is where a company itself has limited in house financial expertise, so the auditor gets encouraged to provide more assistance in the preparation of financial statements,? he said.

Further Reading:

Watchdog reveals scathing report of smaller audit firms

Audit Inspection Report on Smaller Firms Published