Auditing in the spotlight - why quality and independence has never been more important
5th July 2018
The quality of audits has been in the spotlight recently, particularly following the collapse of Carillion. The Financial Reporting Council (FRC) has announced it will now inspect a quarter of KPMG’s audits, following its Big Four Audit Quality Review, which highlighted the need for audit quality to improve at the big four firms.
This is an important reminder to us all of the need to maintain high standards and it’s something we don’t take for granted in our team. We’ve just completed our annual independent review of our audit service and we’re pleased with the inspector’s interim findings. This external inspection is something we have chosen to do as a firm, rather than simply relying on internal peer review which is an option for firms of our size. Audits must be comprehensive, and they must be robust – our external review ensures we are held to account and that we provide a consistently high quality of service across both offices.
Why audits matter
While auditing may not sound like a headline-grabbing activity, its purpose is to ensure businesses are operating appropriately and take action where needed to address any areas of concern. You only have to see the rapid and far reaching consequences of the Carillion case to understand the importance of external checks. Done correctly, an audit should reduce the risk of unexpected business failure.
A detailed and independent check of assets, creditors and debtors, along with short and long-term liabilities should provide a transparent overview of a company’s financial health, with a clear set of actions required to address any issues.
The turnover threshold for limited companies requiring an audit was raised in 2016 from £6.5m turnover or £3.26m in assets to £10.2m and £5.1m respectively, significantly reducing the number of businesses needing an independent audit. In our experience, however, many businesses like the comfort of a detailed external assessment and value the opportunity build confidence in their financial statements, review their processes and make improvements which will help their business long term.
We are confident in the quality of our audit service, borne out by our external reviews. But like all businesses with an eye on continuous improvement, we will be monitoring the learning arising from the recent shake-up in our industry and will continue to implement a best practice approach in line with any recommendations that may emerge from the FSC.
If you have any queries or would like more information about our audit service, please contact Sarah Wilson on 01926 422292.