Issue 53 | January-March 2021 21 INSPECTIONS LATEST INSPECTIONS REPORT IS OUT: RECURRING DEFICIENCIES NOTED The IRBA released its 2020 Public Inspections Report on Audit Quality on 1 February 2021. The report, which focuses on the second year of the IRBA’s Seventh (7 th ) Inspections Cycle, covers the period 1 April 2019 to 31 March 2020. The objective of the Public Inspections Report on Audit Quality is to promote audit quality at a broader level by highlighting significant themes arising from firm-wide and assurance engagement file inspections. In addition, it is aimed at auditors, those responsible for the quality management systems within firms and other relevant stakeholders, such as audit committees, investors, oversight bodies, company directors and financial accountants who are responsible for the integrity of financial information. In 2019/2020, the IRBA continued to focus on audits with a higher public interest exposure and this included audits of listed entities, other public interest entities and state-owned companies. The IRBA, however, also inspected small to medium practices and aims to increase its capacity and capabilities to expand its coverage of these firms in the near future. In the year under review, the IRBA issued inspections reports on a total of 157 (2019: 116) inspections that were performed at 27 (2019: 44) firms. Overall, the inspections outcomes again indicated inconsistencies and significant deficiencies within the majority of audit firms and assurance engagements inspected, in relation to audit quality management and audit quality. The top three engagement deficiency themes highlighted in the latest report are in the following areas: • Financial Statement Presentation and Disclosures; • Revenue; and • Significant Auditor Judgement. The reported deficiency themes are consistent with the Survey of Inspection Findings 2020, issued by the International Forum of Independent Audit Regulators (IFIAR) on 15 March 2021, and continue to be an area of focus for independent audit regulators worldwide. The IFIAR Inspections Survey Report can be downloaded from its website . Meanwhile, the IRBA will continue with its mandatory Remedial Action Process with inspected firms and practitioners. The purpose of this process is to promote prompt and effective improvement in audit quality across audits of all firms with reported deficiencies. Some examples of remedial action plans include: • Reviewing of resourcing; • Improving the project management; • Increased focus on joiners or leavers; • Coaching and guidance on related initiatives; • Improving the integration of internal experts; • Real-time monitoring/support teams; • Methodology enhancements; • Guidance and communications; • Training (technical and soft skills); • Supervision and review; and • Software, procedures and technical updates. The 2020 Public Inspections Report on Audit Quality can be downloaded from the IRBA website . REFLECTIONS ON ETHICS AND INDEPENDENCE In the current economic climate, and with the negative perceptions of the audit profession over the past few years, the tone at the top is critical in improving audit quality and, in turn, restoring confidence in the profession. In the 2020 inspection period, eight firm-wide inspections were reported to the Inspections Committee (INSCOM). Of these inspections, seven (87%) required significant improvement, and one (13%) was referred to the IRBA’s Investigations Department for an investigation. All of these firm-wide inspections reported to INSCOM were at JSE-accredited firms. At a firm level, it is a matter of interest that deficiencies relating to the International Standard on Quality Control (ISQC) 1 element of Relevant Ethical Requirements increased to 13% (2019: 5%) in the 2020 inspections period. In addition, it has been noted with concern that independence, which is one of the fundamental principles of the profession, continues to be an area where deficiencies are identified. Firms and practitioners, therefore, are expected to reflect on the severity and impact of ethical and independence deficiencies on the public and other stakeholders who place reliance on the audit reports issued, as well as the impact on the reputation of the firm and the audit profession as a whole. Tools for Introspection Questions that can be used as tools for introspection within firms, to facilitate dialogue and engagement at various levels, could include the following: • Is firm leadership driving the right behaviour in relation to ethics and independence?