The International Forum of Independent Audit Regulators (IFIAR) has released its ninth annual survey of Members’ inspection results for the 2020 year. IFIAR is a membership organisation of 54 independent audit regulators, including the Financial Markets Authority (FMA).
IFIAR members from 50 jurisdictions participated in the survey, including the FMA for New Zealand. The members provided data from their inspection reports, which are generally issued to the local GPPC audit firms (General Public Policy Committee, which includes BDO, Deloitte, EY, Grant Thornton, KPMG and PwC).
Overall, the survey shows a long-term trend of improvement in the number of findings reported in inspection reports of audit firms associated with the six largest global audit firms. In 2015 the percentage of inspection reports with findings was 43%, and in 2020 it was 34%.
The report notes: “IFIAR monitors general trends in survey findings over time, rather than seeking to evaluate year-over-year changes in results. The rate of findings remains high, and the need remains for audit firms to make continued efforts to address the high level of findings and inconsistencies.”
The FMA’s membership in IFIAR is an important part of its engagement with international regulators and the largest audit firms. As an observer on the Global Audit Quality working group, the FMA is able to see how global firms and regulators are focusing on continuous improvement and the development of strong quality control systems in the audit process.
The Global Audit Quality group, along with the GPPC network’s member firms, have committed to a 25% reduction in the number of inspection reports with findings, for the four-year period between 2019 and 2023. Approximately half of IFIAR’s members participate in this initiative, including New Zealand.
A finding in an inspection report is a sign of deficiencies in meeting the requirements of auditing standards. This is a consistent measure of audit quality adopted by regulators across the globe. Any of these individual findings do not necessarily suggest that audited financial statements are misstated.
The report notes: “While inspection findings are an important measure of audit quality, the initiative contributes to a deeper dialogue between member firms and their local regulators, and between the GPPC networks and IFIAR, about all parties’ common interest in the continued improvement in the quality and consistency of audit performance globally.”