Still not good enough?

According to the Institute of Chartered Accountants in England and Wales (ICAEW), nearly a quarter of company audits are still not good enough. In its annual review published last month, the ICAEW found that 24% of the over 1,000 audits checked in the year to 31 March 2022 needed at least some improvement, a figure unchanged from the previous year. The most common issues with these audits were a lack of scepticism or insufficient challenging of management in areas such as asset valuations and going concern, as well as issues with auditors’ independence.

However, the review also showed that the proportion of audits requiring significant improvement fell to 4% from 7% in the previous year. This is welcome news for the industry, as the ICAEW’s head of audit registration committee, Rama Krishnan, pointed out:

“We’re pleased that our annual review has found a sharp drop in the percentage of audits requiring significant improvement. If this trend is sustained by firms reviewed in 2022-2023 and beyond this is a very positive development.”

The ICAEW emphasized that the 24% figure for audits in need of improvement is still too high, and the profession must continue to focus on increasing standards.

This is especially important given the role that audits play in ensuring the integrity and accuracy of financial reporting, which is crucial for investors and stakeholders.

One possible reason for the high proportion of audits in need of improvement is the increasing complexity of modern businesses. Audits require a thorough understanding of a company’s operations, financial position, and compliance with relevant laws and regulations. This can be challenging for auditors, especially in industries with rapidly changing technologies or business models.

Another factor may be the increasing pressure on auditors to deliver high-quality work under tight deadlines. This can lead to rushed or incomplete audits, which may not adequately address all the relevant issues.

To address these challenges, there are a number of possible solutions. These include investing in the training and development of auditors, increasing the transparency of audit processes, and promoting greater collaboration between auditors and the companies they audit.

In conclusion, while the ICAEW’s annual review shows that the proportion of audits requiring significant improvement has fallen in the past year, it is still too high. The profession must continue to focus on increasing standards and addressing the challenges faced by auditors in order to ensure the integrity and accuracy of financial reporting. This is crucial for the confidence of investors and stakeholders, as well as the overall health of the economy.