ASIC has today reported on the results from its audit firm inspections of 45 audit files across 14 firms (which included one large unlisted entity file at each of the largest six firms) in the 12 months to 30 June 2022. The audit files were selected from a population of over 2,100 companies listed on the ASX and large unlisted entities audited by the largest six firms.
ASIC Commissioner Sean Hughes said, ‘Audit inspections are designed to promote audit quality and high-quality financial reports. ASIC encourages audit firms to continue to focus on improving audit quality, which will in time improve the overall level of findings. As we announced in July 2022 (see 22-172MR), ASIC will commence routinely communicating negative findings from its reviews of audit files to directors, to further improve the quality of financial reporting.’
‘For the first time our report includes two case studies of good practice in the areas of the audit of revenue and the audit of asset values and impairment of non-financial assets. These are areas where we have historically had large numbers of negative findings. We expect these case studies will help auditors to improve their audit processes in these areas,’ said Mr Hughes.
As ASIC reviews only a small sample of audit files on a risk-assessed basis, there will always be variations in negative audit findings from year to year. However, ASIC expects all audit firms to focus on audit quality. They must identify and address the root cause of negative findings and develop and implement action plans to foster an effective and sustainable audit quality system.
While the most recent inspections have shown an overall raw increase in negative findings, this does not mean that the financial reports audited were materially misstated. Rather, in ASIC’s view, the auditor may not have a sufficient basis to support their opinion on the financial report. The increase in negative findings is potentially due to ASIC’s focus on a small number of high-risk audits and higher risk key audit areas within these audits, as well as the inclusion of audits of large unlisted entities and the impact of COVID-19 conditions.
