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The IRBA's latest

Public Inspections Report 2014/2015:

Striving for Consistent, Sustainable High Audit Quality

acknowledges that audit quality requires improvement, as

inspections performed over the past financial year show. The

IRBA Inspection Committee reported on 37 audit firm and 375

audit engagement inspections for the year. Most firms showed

one or more deficiencies, including ethics (independence),

engagement performance and monitoring, which require

urgent improvement.

A significant number of individual audit engagement files also

showed deficiencies that need urgent attention. A total of 16%

of firms and 6% of engagement partners were referred to the

Investigating Committee of the IRBA due to fundamental or

continued noncompliance with international auditing and

financial reporting standards, professional codes and

legislative requirements. The report also emphasises the

need for audit firms to urgently address ethics and

independencematters, as well as engagement quality.

However, caution should be applied in extrapolating the

inspection results across the entire audit population. The IRBA

adopted a risk-based inspection methodology that is biased

towards higher-risk audit areas and specific risk indicators.

This means any deficiency in these areas could potentially

create risks to the public, if not appropriately responded to by

the auditor. The risk-based approach also assists the IRBA to

focus on those identified areas where deficiencies are likely.

An assessment that an audit is unsatisfactory does not

necessarily mean that an inappropriate audit opinion was

expressed, the financial statements were misstated, or there

has been misconduct on the part of the firm or registered


As part of its commitment to promote auditors to achieve and

maintain consistent sustainable high levels of audit quality and

produce reliable audit reports on financial information, the

IRBA implemented the recommendations from the


Bank Report on the Observance of Standards and Codes:

Auditing and Accounting

(ROSC) that were adopted by the

Minister of Finance. These recommendations are aimed at

improving the inspection processes and making them more

robust, and they include implementing a risk-based approach

and strengthening financial statement reviews.

The IRBA has now gone a step further in its inspection

procedures and implemented a Remedial Action Process that

is aimed at assisting those firms and practitioners who have

shown deficiencies in their firm's quality control policies and

procedures or audit files. During this process, the IRBA

remains aware of its independence. The Remedial Action

Process is part of the IRBA's commitment to promote

consistent sustainable high audit quality by ensuring that audit

firms and practitioners promptly address the root causes of

significant inspection deficiencies that have been raised

during an inspection. Through this more formal process,

practitioners and firms are required to submit a root cause

analysis and an action plan on how they will address reported

deficiencies and improve their audit quality. In addition, they

have to submit a written undertaking that acknowledges that

they will address all significant audit quality deficiencies that

were reported to them.

This process can be highly effective and yield the necessary

improvements needed, but only if leadership at the firms buys

into the remediation process in a constructive manner and

then develops and implements appropriate remedial plans

and strategies.

The IRBA's aim is to encourage appropriate corrective action

by communicating and engaging more with affected firms and

practitioners, providing them with an opportunity for the best

possible outcome during their re-inspection. Those firms that

identified the root causes and implemented appropriate

remedial action plans were found more likely to be satisfactory

upon re-inspection.

High-quality auditing and accounting are not only essential for

reliable financial reporting, but are also critical in protecting the

public interest and boosting investor confidence. In fact,

compliance with auditing standards, ethics, financial reporting

standards and legislative requirements is fundamental in


The IRBA issues its Public Inspections Report for 2015

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Issue 32 October - December 2015