A school of financial experts are of the opinion that external audit firms doling out clean chits to banks just before they collapsed are in a part responsible for triggering the worldwide economic crisis. The financial stability board, a body tasked with global economic governance, needed a detailed report on the  audit engagements of major financial institutions. The members of IFIAR, the International Forum of Independent Audit Regulators, located around the world came together to identify and bring together issues relating to several aspects of audit inspections. The forum has just released the findings of the survey that allows its members to identify those areas of public company audit that need improvement and to make suggestion about the practices that seem to be most effective in reducing audit deficiencies.

The survey sought to identify the level of inspection activity among IFIAR members and asked members to report findings from their inspections of audit engagements where they had noted deficiencies in specific areas. Members reported instances where the auditor did not perform sufficient work to meet the applicable auditing standards and other related requirements.

The survey focused primarily on members’ inspections of audit firms that are members of the six largest international audit firm networks and includes issues identified by:

• Twenty-two IFIAR Members’ inspections of audit engagements for 961 public companies at 98 audit firms;
• Ten Members’ inspections of audit engagements for 108 major financial institutions at 28 audit firms; and
• Twenty-three Members’ inspections of 109 audit firms’ internal quality control systems;

The survey found that a large number of members conducted audit inspections of public companies in the following areas:

• fair value measurements
• internal control testing
• engagement quality control reviews

Additionally, inspections of audits of major financial institutions revealed that the largest number of common audit inspections was performed in the following areas:

• internal control testing
• valuation of investments
• securities
• audit of allowance for loan losses and loan impairments

The representatives from the six largest audit firm networks participated in discussing the four major issues in the area of public company audit -- professional skepticism, group audits, revenue recognition, and the role of the engagement quality control reviewer.

IFIAR said that its members will continue to inspect the public company audit engagements, including major financial institutions, and work closely with the audit firms in their jurisdictions to improve audit quality.

“IFIAR’s goal is to conduct periodic surveys to measure changes in these findings with the goal of allowing Members to identify those areas that need improvement and to share experiences about what practices seem to be most effective in reducing audit deficiencies,” IFIAR Vice-Chair and Board Member at the U.S. Public Company Accounting Oversight Board Lewis Ferguson said in a statement.

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