Annual Report 2016

Financial Audit | FAOA 2016
15
management is also to be confirmed
using other audit procedures.
Risk assessment and response also
covers general IT and application
controls. If an auditor wishes to rely
on the effectiveness of general IT
and application controls these controls
have to be tested adequately.
The auditor cannot otherwise rely on
system-generated documents that,
in turn, form a basis for the audit of
various account balances. In some instances,
however, reliance was placed
on IT and application controls without
them being tested adequately. It often
appears that these findings result
from a lack of professional scepticism
and the insufficient assessment
of, and response to, risks of material
misstatement.
Figure 3
Type and number of findings from the 2016 file reviews at the smaller audit firms
(total 19 findings)
Communication with TCWG (ISA 260)
Fraud (ISA 240)
Risk assessment and response (ISA 300f.)
Group audits (ISA 600-620)
Estimates (ISA 540)
1
2
2
2
3
4
Audit sampling (ISA 530)
5
Audit evidence (ISA 500-520)
At the smaller audit firms deficiencies
in audit evidence, audit sampling and
the audit of estimates were found
repeatedly. In many cases insufficient
audit evidence resulted from inadequate
planning.
IFIAR survey on inspection results
IFIAR published the results of a broadbased
survey on 3 March 2016 6 . 29
IFIAR members took part in the survey.
This is already the fourth survey of this
type, identifying common findings at
the six largest global audit firms on
an anonymous basis. The survey concentrates
particularly on file review
findings at PIEs and systemically important
financial institutions. Based on
the survey, IFIAR negotiates with the
six large audit firms 7 at a global level.
The negotiations aim to agree on joint
measures to improve audit quality.
Analysis of FAOA findings and those
of other oversight authorities shows
similarities in the following areas,
amongst others:
− Recoverability of fair-valued assets
− Internal controls
− Revenue recognition
− Group audits
− Identifying and responding to risks
of material misstatement
IFIAR members continue to believe
that the global audit networks and
local audit firms must make further
coordinated efforts to permanently
eliminate recurring deficiencies in the
above-mentioned areas. IFIAR reached
an agreement with the six largest audit
firms to meet this goal. Specifically,
the number of PIE companies with
at least one finding is to be reduced
from 39 percent to 29 percent over
the next four years (reduction around
25 percent). As in the prior year, the
importance of the root cause analysis
for deriving appropriate and sustainable
measures was further highlighted.
The FAOA has also drawn its conclusions
from this. First, the criteria for
classifying a file review finding as a
comment form have been amended to
take greater account of the potential
likelihood and extent of its impact on
the consolidated financial statements.
This may tend to reduce the number
of findings in the future. Secondly, the
FAOA has augmented its assessment
of the quality of audit firms’ root cause
analyses with respect to internal monitoring
and FAOA findings.
6 www.IFIAR.org > IFIAR Global Survey of
Inspection Findings.
7 BDO International Limited, Deloitte Touche
Tohmatsu Limited, Ernst & Young Global
Limited, Grant Thornton International
Limited, KPMG International Cooperative
and PricewaterhouseCoopers International
Limited.