In last week’s blog ‘SME Audits Need to Improve’ we highlighted a recent report by the Financial Reporting Council (FRC) in the UK about their audit inspection findings for the year ended 31 March 2023. We continue with extracts from the report below.
Going concern was described as ‘an area of particular concern to audit firms’ by the FRC and it resulted in worse findings by 1% compared to the previous review.
Key findings of the review were:
- going concern included insufficient procedures to test cash flow forecasts;
- inadequate procedures to elevate the impact of loan covenants;
- insufficient procedures to assess the financing of debt; and
- There were ‘shortcomings in the reviews of audit work performed by engagement partners and/or engagement quality control reviewer’.
Other areas that led to such a high number of audits needing significant
improvement were:
- Revenue accuracy; and
- material accounting errors during an
Improvements recommended by the Financial Reporting Council include investment in:
- audit methodology;
- human resources,
- audit quality functions; and
- learning from mistakes made throughout their current auditing processes.
The FRC also suggested audit teams refer to the FRC paper, What Makes a Good Audit. See how to do this here.
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