ASIC has this week released information obtained from its inspection of 45 audit files for the 12 months to 30 June 2021.
Overall, the findings highlighted an overall increase in the percentage of key audit areas where auditors did not obtain reasonable assurance that the financial reports were free from material misstatement. The overall results for the six largest firms were consistent with last year, ASIC noted.
ASIC noted that in the 23 per cent of the 115 key audit areas reviewed across 35 audit files of the six largest audit firms, the auditors did not obtain reasonable assurance that the financial reports were free from material misstatement (negative findings). This compares to 24 per cent of the 156 key audit areas reviewed in 46 audit files at the largest six firms for the 12 months to 30 June 2020.
“The equivalent negative findings across all 16 audit firms inspected was 32 per cent of the 149 key audit areas reviewed across 45 files this year and 27 per cent for the 179 key audit areas reviewed across 53 files at 13 audit firms last year,” ASIC said, noting that 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”.
Other areas of our findings included audit of inventories, investments and financial instruments, expenses and payables, and provisions, it said.
Commenting on the findings, ASIC commissioner Sean Hughes said: “While our audit inspections purposefully target higher risk key audits, the level of negative findings is of concern and warrants deliberate and continued concerted efforts by all firms to improve audit quality and reduce the overall levels of negative findings.
“The need to properly inform the market and investors through financial reports continues to be important in the context of COVID-19 conditions and requires auditors to respond to potentially more difficult judgements on asset values, liabilities, solvency, going concern and disclosures, as well as challenges from remote working arrangements.
“ASIC’s ongoing regulatory activities will include reviewing our programs for regulating auditors and financial reporting, consulting on routine reporting of audit findings to directors and continuing our focus on enforcement actions for deficient audits.”
CA ANZ response
The professional body said while the audit inspection report outlines key areas of focus for the profession, it’s important to not generalise results.
“This report is valuable in helping the profession strive for continuous improvement and to be alive to challenging areas particularly as COVID-19 created greater economic uncertainty and increased the complexity of audits,” said Amir Ghandar, reporting and assurance leader at CA ANZ.
“In addition to disseminating the findings to members, these valuable insights will inform our training and resources as we look to equip members with targeted support.
“ASIC’s program is risk-based, meaning they aim to focus on higher risk files. This is where the program is so valuable in unearthing focus areas, but also why the data can be misread. While we are more likely to get this kind of rich information with a risk-based sample, we should be mindful this approach means comparison of the statistics across different periods is not likely to be statistically valid.”
Moving forward, Mr Ghandar said CA ANZ will continue to encourage the regulator to provide more graduated information on how it views the severity of issues identified, and the judgements involved, as was recommended by the parliamentary inquiry into regulation of auditing.
“We are also eager to see the return of the broader suite of audit quality measures and indicators that were published by ASIC in the past few years, as this approach goes much further in helping understand audit quality in Australia,” he concluded.
Emma Ryan is the deputy head of content at Momentum Media and editor of the company's legal publication, Lawyers Weekly.
Emma has worked for Momentum Media since 2015 and has been responsible for breaking some of the biggest stories in corporate Australia. In addition, she has produced exclusive multimedia and event content related to the company's respective brands and audiences.
A journalist by training, Emma has spent her career connecting with key industry stakeholders across a variety of platforms, including online, podcast and radio. She graduated from Charles Sturt University with a Bachelor of Communications (Journalism).