Firms should create a culture where achieving “high-quality audit is valued and rewarded”, the Financial Reporting Council (FRC) said in a statement this month.
It came ahead of its new report “Audit Culture Thematic Review”, which looks at the importance of “doing the right thing” in the public interest.
In brief, the report considers the current climate of identifying challenges in corporate culture and how companies take action to address them to promote and sustain improvements in audit quality.
Announcing the report, Melanie Hind, Executive Director of Audit and Actuarial Regulation at the FRC, said: “There are many factors that influence the environment within which auditors make their decisions and act. Therefore, it is vitally important that firms create an audit culture where achieving high-quality work is valued and rewarded, and which emphasises the importance of ‘doing the right thing’ in the public interest.
“We found that firms have taken steps to achieving this. However, more should be done by firms to successfully promote and embed their desired culture, so that audit quality can be consistently and sustainably high.”
Within the report’s findings, it found that firms are indeed investing considerable time and effort on their firm-wide culture and spotlights a number of examples of good practice among firms.
However, it notes that there are key areas where firms should show greater attention to improve the overall quality of audit. These include:
- Giving additional prominence to audit specific behaviours and values within the firms’ cultural design, including the fundamental principles of integrity, objectivity, independence and professional scepticism that underpin high-quality audit;
- Ensuring that all audit partners and staff appreciate that a good audit is of significant societal value and helps to underpin transparency and integrity in business;
- Balancing the firms’ robust processes to sanction poor quality work or behaviour with better recognition of positive contributions to high audit quality;
- Further developing the firms’ root cause analysis techniques to identify the behavioural or cultural factors that contributed to good and poor quality outcomes; and
- Improving the firms’ monitoring of how successful they are at embedding their desired culture, including the Independent Non-Executives of the firms being more proactive when performing their assessment of the steps being taken by the firms to embed an appropriate culture.
To read the report in full, please click here.