Auditing the auditors – room for improvement

The good news for Irish public-interest entities like banks, insurers and listed companies is that the now annual scrutiny of their auditors’ work seems to be bearing fruit.

The Irish Auditing & Accounting Supervisory Authority (Iaasa) began to review and grade the work of public interest entity audit firms in 2016 and, after a few years of back-and-forth with firms, started publishing its findings in early 2020 – making it among the more transparent such reviews in Europe.

Iaasa’s first set of reports said that 71 per cent of audits sampled across the State’s then eight relevant audit firms in 2018 were of grade one or two, indicating audit quality of a good standard.

The latest round, published on Tuesday, shows that 93 per cent of inspected audits of the seven remaining in the market last year met this level.

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PwC and KPMG fared best, with each receiving grade ones for their respective six audits reviewed. As well they should, given that the two account for almost half of all public interest entity audit fees collected across the sector.

Red finding

While Deloitte, which rakes in 27 per cent of the sector's fees, picked up good grades for five sample audits, it got a grade three for one – meaning some improvements are required. The same was the case for EY, which has a 13 per cent share of public interest entity audit fees.

Meanwhile, BDO, which has a 0.4 per cent slice of this corner of the market, received good grades for both its sampled audits. However, it received one so-called "red" finding as part of Iaasa's assessment of the design of the firm's system of quality control over such audits.

“The red finding related to Iaasa’s review of the firm’s internal policies and procedures, not to the audit of public interest entities, and it is Iaasa’s conclusion that there should have been more internal consultation by the firm’s engagement partners,” a spokesman for the firm said. “We will ensure that our firm’s policies are updated as recommended.”

Grant Thornton, handed good grades for three sample audits, still got three “amber” rating for its system of quality control, while KPMG – a top scorer for actual sampled audits – received one amber. Room for improvement across most firms, it seems.