The report for the 18 months to 30 June 2012 covered inspections of 20 Australian audit firms and found 18% of the 602 audit areas reviewed did not perform all of the procedures necessary to obtain reasonable assurance that the audited financial report was not materially misstated. The figure for the previous 18 months was 14%.
While the financial reports audited may not have been materially misstated, the auditor had not obtained reasonable assurance that the financial report as a whole was free of material misstatement.
‘Auditors are gatekeepers that play a critical role in ensuring that Australian investors can be confident and informed,’ Mr Medcraft said.
‘These results are disappointing. Audit firms need to increase their efforts to improve audit quality and the consistency of audit execution.’
ASIC will work with firms and the audit profession more generally on how they can improve audit quality. We will monitor the implementation and execution of any plans to improve audit quality, and their effectiveness.
ASIC has identified three areas needing improvement:
- the sufficiency and appropriateness of audit evidence obtained by the auditor
- the level of professional scepticism exercised by auditors, and
- the extent of reliance that can be placed on the work of other auditors and experts.
Download Report 317 Audit inspection program report for 2011–12 (REP 317)
Background
The audit areas reviewed included impairment of assets, going concern assessment, and other significant areas involving significant estimates or judgements.
ASIC’s audit inspection program aims to promote high-quality external audits of financial reports of listed and other public interest entities in Australia. High-quality audits are an important contributor to financial report quality and market confidence.
Audit quality comes down to three key points:
- the likelihood of material misstatement
- the likelihood that the audit detects misstatement, and
- whether the auditor does anything about it.
ASIC publishes its public audit inspection reports every 18 months to inform all audit firms, the investing public, companies, audit committees and other interested stakeholders in the financial reporting chain, of findings and areas of focus.
ASIC inspects firms that audit significant public interest entities. Since 2006, ASIC has inspected all large national and network firms at least once, with a large number of these firms being inspected a number of times. ASIC also continues to inspect smaller firms where they are responsible for audits of publicly listed entities, or other public interest entities.
Other ASIC activities include the financial reporting surveillance program, auditor surveillances, investigations into corporate collapses, and addressing matters from complaints and other intelligence. The public inspection reports do not include matters from arising from these other activities.