Of the six U.K. firms whose 2019-20 Financial Reporting Council audit quality inspection reports we’ve reviewed over the past couple weeks, none of them got at least 80% of their audits done right. If these were high school test scores, Deloitte would get a C+, PwC a D+, EY a C-, KPMG a D-, BDO a D-, and Grant Thornton an F. This pretty much tells you all you need to know about the sorry state of audit quality in the U.K.
But there was one firm that did have 80% of its audits looking spotless or nearly spotless. That firm was Mazars. The FRC said:
We reviewed five individual audits this year and assessed four (80%) of them as requiring no more than limited improvements. The firm has made progress in relation to the key findings highlighted in last year’s report with no recurring issues identified.
We also identified good practice in a number of areas of the audits we reviewed (including testing the valuation of insurance technical provisions) and in the firm-wide procedures (including the firm’s audit quality initiatives’ focus on culture and audit team behaviours).
We identified findings in all of the firm-wide areas reviewed in the current year which the firm needs to address. Some of the findings on partner and staff matters are similar to those raised in our 2016/17 inspection. The firm has, however, made progress in addressing prior year findings in relation to independence and ethics and has improved the consultation and monitoring processes for non-audit services.
OK, Mazars did have a much smaller sample of audits inspected by the FRC than the other six firms, but Mazars can’t be blamed for that. And because Mazars did such a decent job during the most recent inspection cycle, it now has the FRC’s attention:
The firm is experiencing significant growth with changes in its audit portfolio and its appointment as auditor on larger and more complex audits. This calls for more rigorous, effective management and quality control systems. The firm should continue to strengthen audit quality initiatives and focus, as applicable, on resourcing, formalisation of sector-specific guidance and work programmes to supplement the firm’s overall audit methodology and addressing audit quality in relation to both individual audit findings and firm-wide issues raised. In view of the above, we intend to inspect a higher number of audits as part of the 2020/21 inspection cycle.
The days of Mazars getting only five of its audits inspected by the FRC are over it seems.
This graph shows how Mazars’ latest inspection report stacks up against its last three:
Here’s the latest breakdown of U.K. audit failure rates (requiring improvements or significant improvements) including Mazars:
[Mazars audit quality inspection report]