UK Big Four Audit Firms Pass Inspection

The UK regulator of public company audits has completed inspections of the Big Four audit firms and found no systemic weaknesses in their overall quality control systems. However, improvement is needed in the extent to which the overriding importance of audit quality is reflected in the firms’ human resources processes. The Professional Oversight Board also conducted inspections of what are sometimes called the Following Five audit firms and found a similar need for improvement. But generally, the Board found that audits had been conducted to a high or acceptable standard. The Big Four firms have a dominant share in the audit of larger UK companies, auditing 97 percent of the FTSE 250.

Unlike the PCAOB, the POB does not make public the inspection reports for individual audit firms, although it is currently considering whether to go the PCAOB route and conduct public inspections of audit firms. But the Board did note that it cooperated with the PCAOB on at least one firm audit inspection.

At this time, the Board is inclined to take the intermediate step of naming in its annual report any audit firms that have failed to cooperate with the Board’s inspection process. This ``naming and shaming’’ approach would give audit firms the opportunity to address the Board’s concerns in private reports, but with the prospect of public disclosure of the nature of the weaknesses that the Board has identified when the opportunity for improvement is not taken.

The Board feels strongly that a written report to the audit committee is a key element of audit quality; and was happy to report that the quality of reporting is receiving a high level of attention at all the firms.That said, the Board did identify some areas for improvement, including communicating audit planning information to the audit committee.