Top takeaways summary: FRC Audit Quality Inspection Results 2020/21
The 7 individual reports sum to 239 pages and there is wealth of valuable insights within. As well as the key findings the FRC has noted during their individual audit reviews, the reports include the results of the firm’s root cause analysis on the issues identified, the broader actions they are taking, good practices noted and assessments of firm-wide procedures.
So, what actions can accounting firms outside the largest seven take to avoid the audit quality issues identified by the FRC in 2020/21? And how is Inflo’s Digital Audit approach helping firms improve quality in these areas? To be able to provide the necessary analysis, we will tackle one topic at a time.
Revenue is a key driver of operating results for many entities and is often identified as a key performance indicator for investors and other users of the financial statements. Accounting for revenue recognition, including long-term contracts, may be susceptible to management bias or error.
The FRC raised revenue testing as a key finding for four of the seven firms.
Areas of judgement, such as estimates and assumptions, are inherently subjective. They are susceptible to management bias and highly sensitive to change. When evaluating management judgements, auditors should apply appropriate challenge, test assumptions and consider the sensitivity of these assumptions.
The FRC raised multiple areas of judgement as key findings for all seven firms
Auditors are required to perform procedures that are responsive to identified significant risks and presumed fraud risks.
These procedures should be tailored to ensure that sufficient and appropriate audit evidence is obtained.
Here we focus on other key findings raised.
Inflo Insight | Strengthen Your Advantage
Launched in 2021, Inflo Insight delivers thought leadership articles, research and expert opinions on accounting and audit issues. Our content examines the complexity and challenges audit firms are facing in an evolving business landscape. Our intention is to summarise and simplify key trends and takeaways that saves you time, builds knowledge and capability to adapt.
Inflo was founded by former Big Four auditors with the objective of making more progressive audit technologies and methodologies available to audit firms of all sizes. Our Digital Audit technology and approach improves the quality and relevance of the audit product for over 70% of the UK’s largest, non-Big Four firms. Our goal is to educate and support the profession to embrace and adapt to change and strengthen your advantage.
To find out more about the 2020/21 FRC audit quality inspections, subscribe to our mailing list. We will take a deep-dive into the common key findings and the actions firms can take to improve audit quality in the most challenging areas of the audit process.