Business

Accounting regulator ‘disappointed’ as 23% of important company audits needed improvement last year

Iaasa says rate of shortcomings in audits of ‘public interest entities’ doubled compared to 2022

Each year Iaasa selects a sample of audits of PIEs by seven accounting firms. PIEs include banks, insurers and companies whose shares or debt are listed on a stock exchange. Photograph: iStock

Joe Brennan
Mon Mar 11 2024 - 06:00

The Republic’s accounting watchdog said that 23 per cent of audits of public interest entities (PIEs) last year required improvement, more than double the rate of shortcomings found in a quality assessment review carried out in 2022.

“The results of the 2023 inspections are disappointing, with 23 per cent of audits inspected requiring improvement,” said Kevin Prendergast, chief executive of the Irish Auditing and Accounting Supervision Authority (Iaasa).

Each year Iaasa selects a sample of audits of PIEs by seven accounting firms. PIEs include banks, insurers and companies whose shares or debt are listed on a stock exchange.

Iaasa undertook inspections of 31 sample audit files last year. Of these, 24 were graded as good audits, but seven required improvement. Still, no audit files required significant improvement, Iaasa said in a statement on the sector-level findings.

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In 2022, only 11 per cent of files that were inspected required improvement.

Individual reports on the sampled work of the seven PIE audit firms in the State, BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars and PwC, will be published on Monday.

Although the issues varied across files inspected, there were consistent findings in relation to the review of financial statement disclosure, audit of related party transactions, and communications with those charged with governance, Iaasa said.

“Our team takes a risk-based approach to inspections, seeking to identify where there is a greater risk of poor audit performance, meaning that the results are not representative of the quality of all audits performed,” said Mr Prendergast.

“Notwithstanding this, clearly there is work to be done to improve the consistency of performance. We expect audit firms to carry out a robust root cause analysis to address the issues identified. We will continue to work with the audit firms under our remit to drive improvements in audit quality.”

Iaasa began to review and grade the work of PIE firms in 2016 as a result of EU audit reforms and, after a few years of back and forth with firms, first published findings on individual firms in 2020. It has since published individual reports on an annual basis, making it among the more transparent reviews in Europe.

The 2023 review was the first that took place under a new international quality management – or ISQM – approach to audits, following a number of audit problems involving large scale companies in the past decade that have rocked the sector globally.

Rather than simply setting control procedures that audit firms must follow, the new standards require firms to design, implement and operate a system of quality management for audits or reviews of financial statements or other assurance or related services engagements.

Iaasa has fined eight individuals since it assumed direct responsibility in 2016 for inspecting audits of so-called public interest entities, five of which were levied last year alone. These included two former auditors of the Irish unit of Wirecard, the disgraced German payments company that collapsed in 2020. They were fined a total of €30,000 and severely reprimanded for “serious” shortcomings in their audit work on the company.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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