ASIC reviewed a total 463 key audit areas across 111 audit files at firms of different sizes and found in 19 per cent of audit areas, auditors did not obtain reasonable assurance the financial report, as a whole, was free of material misstatement. This compares with 20 per cent for ASIC’s report covering the previous 18 months ending in December 2013.
However, ASIC noted that the surveillance focused on higher-risk audit areas and so caution is needed in generalising the results across the entire market. Therefore, the findings should be viewed as an indication of how some firms address more challenging audit situations.
Commissioner John Price said: “Auditors are gatekeepers that play a critical role in ensuring Australian investors can be confident and informed and based on our findings there is a continued need for audit firms to improve audit quality and the consistency of audit execution.
“While firms continue to make good efforts to improve audit quality, these are yet to be reflected in our risk-based inspection findings.”
The ASIC findings do not necessarily mean financial reports audited were materially misstated. Rather, in ASIC's view the auditor did not have a sufficient basis to support their opinion on the financial report.
According to a statement from the regulator, the review suggested audit firms must continue to improve in the following three areas:
• the sufficiency and appropriateness of audit evidence obtained by the auditor
• the level of auditors' professional scepticism
• appropriate use of the work of experts and other auditors.
Many of ASIC's findings related to accounting estimates (including impairment of assets) and accounting policy choices.
The report outlines areas auditors should continue to focus on to improve audit quality and the consistency of audit execution, as well as future focus areas for our audit inspections.
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