Audit Market Reviews

This article discusses the ongoing concerns and deep-rooted problems in the audit market, as highlighted by a parliamentary committee. It explores the conflicting views on audit quality and the actions being taken to address them. The article also provides references on how to improve audit quality.

Memorandum
To: KPMG
From: Ioanna Sinatka
Date:15 May 2019
Subject: Audit market reviews
The “parliamentary committee” raised “ongoing concern” regarding the “deep-rooted
problems in the audit market” and highlighted a “serious review”. Following the action of the
parliament, the audit work of the concerned consulting firm has been addressed in the
discussed report. For the last few years, the quality of audit is of high concern as stated by the
committee on corporations and financial services. They are of opinion that new methods of
measuring quality of audit should be developed such that the outcome generated can be
compared over time. To develop the methods the committee has approached the Australian
Securities and Investments Commission.
The consulting firms have involved themselves into the parallel business of auditing. The
share of statutory audit work of the big four reduced last year and lies somewhere between 14
percent and 21 percent as found from the research made by The Australian Financial Review.
According to a report that came out last week, that a preliminary research to find the type of
operation (cartel or anti – competitive) of the firms is ongoing and the conducting authority is
the competition regulator.
The views of ASIC and the Financial Report Council regarding audit quality has found to be
conflicting as per the committee report. The former is of the opinion that improvement is
required in audit quality whereas the latter is argues that the system is without any fault. The

current audit quality report presented by ASIC’s mentioned about the cases of firms had
comprised their “appearance of independence” and provided extra information to the audit
clients, but, even after that 20 percent of the reviewed audit report failed to assure that there
is no material error in company financial statement.
According to the committee recommendation, ASIC should formulate and perform a study
that bring out comparable results to find out the changes in the audit quality and study can be
conducted under Audit Inspection Program of ASIC.
It is being observed that regarding particular elements of the bank’s fair value alterations,
your audit work failed to fulfil the suitable standards. Thus, with reference to the criticism of
the FRC, the audit head of KPMG is taking necessary action to address the outcome. With
objective of ensuring application of highest consistency standards and care in every aspect of
our work, investing large sum of money in your business of audit.
Based on the issues raised in the article regarding accounts, we are providing few references
of Audit quality that will contribute to the prospect of the auditor:
Assure that the financial report has no material misstatement and alongside ensure the report
communicates or addresses any detected material deficiencies and thereby obtains reasonable
assurance. It should be done through appropriate application of important estimations and
treatments of accounting that significantly influence reported financial result and positions.
The independent audit is done to achieve maximum reliability by excelling quality of
financial reports. More is the financial reports’ quality better will be the transparency in

market and relationship with investors. It is necessary to improve quality of audit and its
consistency in execution such that confidence in provided free assurance is maintained.
The role of the directors and auditors of a company are questioned if the financial report of
the company fails to reflect the existing issues and deteriorating financial result and positions.
Concerns can also be raised regarding investments that are made based on the financial
reports that do not show true financial scenario of the company.
Delivering quality financial reports are the responsibility of the directors and the audit teams.
Thus, it is their duty to ensure timely production of quality financial information and
providing required resource to the auditors. Priority should be given to quality while selecting
auditors such that quality of audit is not compromised.
The auditors must assure that the financial reports are factually correct and should nullify any
detected deficiencies by appropriate financial evaluation and accounting treatments such that
users of the report can trust the quality of the furnished information that report contains.
The quality of audits depend on the scepticism of the auditor. A auditor should have critical
thinking abilities and must apply critical thoughts while assessing the evidences and
accounting estimates provided by the management and logic behind their accounting
treatments. Therefore, better auditors strive to maintain the quality of audits by managing
critical situations.
The activities that have impacted quality of audits of some firms positively are as follows:

Developing sense of accountability among the stuffs and partners regarding delivering quality
audits by increasing times spent with partners and engagement teams
Developing groups of professionals and risk panels focusing practical analytical methods,
loss of non-financial assets and relevant areas to grow proficiency and providing coaching
and support to audit teams
Assuring appropriate project management by appointing teams to monitor over milestones
achievement and resolving issues to mitigate deadline pressures during the closure of the
audit
It is highly appreciated if the firms regularly and analytically evaluate and review their plan
of action and keep on updating the plans with emphasis on:
Prompt and efficient implementation
Measuring degree of successfulness of action plan in practical scenario by using audit quality
measures and review results
Introducing new plans where earlier plans fail to address the issues
Finally, the firms should take actions regarding maintaining audit quality and with messages
from leadership of firm the importance of delivering quality audits should be conveyed such
that the culture of the firm remain intact. Monitoring and review of the audit planning and
implementation with association of partners engaged with the audit teams and influence of
poor audit quality on compensation of partners and extending review of partners regarding
poor audits to firm leadership.
Please feel free to contact me regarding any queries.

References
1. Ft.com (2018). Big four UK accountancy firms face radical shake-up | Financial
Times. [online] Ft.com. Available at: https://www.ft.com/content/836a7230-0223-
11e9-9d01-cd4d49afbbe3 [Accessed 25 May 2019].
2. BBC News (2018). UK accountancy firms face major overhaul. [online] BBC News.
Available at: https://www.bbc.com/news/business-46591575 [Accessed 25 May
2019].
3. Journal of Accountancy (2019). How to improve audit planning effectiveness and
efficiency. [online] Journal of Accountancy. Available at:
https://www.journalofaccountancy.com/news/2017/jun/improve-audit-planning-
effectiveness-efficiency-201716722.html [Accessed 25 May 2019].
4. Cpaaustralia.com.au (2019). Improving audit quality. [online] Cpaaustralia.com.au.
Available at: https://www.cpaaustralia.com.au/podcast/improving-audit-quality
[Accessed 25 May 2019].
5. Accaglobal.com (2017). Performing effective (and efficient) audits - the importance
of planning and materiality | ACCA Global. [online] Accaglobal.com. Available at:
http://www.accaglobal.com/in/en/member/discover/cpd-articles/audit-assurance/
effective-audits.html [Accessed 25 May 2019].