EY fell short on 15 per cent of the audit areas reviewed, compared with 7 per cent last year, though these results were still the best of the big four accounting firms. PwC was the sole firm to improve its performance, with 17 per cent of the audit areas reviewed having issues this year compared with 25 per cent last year.
The ASIC reviews aim to prevent shoddy audit work that undermines confidence in capital markets. The latest review came amid unprecedented scrutiny of audit quality following high-profile scandals such as the Wirecard saga, parliamentary inquiries and possible regulatory reform.
Training, tech promised
Deloitte’s managing partner of audit and assurance, Joanne Gorton, said the firm was “investing heavily in technology” to improve its audit work. Audit staff were also undertaking more training to raise quality.
This included taking all assurance staff, “from our newest recruits and graduates up to the most senior partners”, out of their regular work for three days this year to train them up in the new technology and upskill their audit judgment skills, Ms Gorton said.
Deloitte’s partners were told in a crisis meeting over the ASIC results last week that fatigued staff and missed deadlines were two causes of the slump in quality, and Ms Gorton said plans were under way to mitigate these factors.
“We’re trying to spread out the work over the year because that makes the workload much more manageable,” she said.
Deloitte also had 100 new audit recruits due to arrive in Australia over the next six months, Ms Gorton said, and it had brought in short-term staff or seconded people from other teams to help in the most recent reporting season.
KPMG was also stepping up its investment in technology in Australia as part of its existing audit quality transformation project, which had slowed because of the pandemic but was now back on track.
“We’re bringing in initiatives that have been shown to work in other KPMG firms around the world, increasing our use of data and analytics,” said the firm’s head of audit quality, Shaun Kendrigan.
For example, it was introducing a new app-based platform used by KPMG in the UK, which helped auditors tailor questions to a specific company’s circumstances.
The firm was also “relaunching a whole new additional training program”, Mr Kendrigan said, and was also bringing in experts earlier in audits and standardising working papers.
Glenn Carmody is “comfortable” with EY’s audit quality. Arsineh Houspian
Ms Gorton and Mr Kendrigan pointed out that ASIC’s issues with their work largely stemmed from disagreement with the firms’ judgment calls on certain audit areas, rather than direct mistakes that could lead to financial report restatements.
Analytics and culture are key
Reinforcing Deloitte and KPMG’s plans to use technology to improve the quality of their work, EY assurance leader Glenn Carmody said the fact that the firm had already invested heavily in software and analytics was partly why its work was consistently the highest rated by the regulator.
Although EY’s results also worsened this year, Mr Carmody said he was “comfortable operating at [the] level” of 7-15 per cent in terms of the portion of key audit issues where ASIC had signalled problems and expected its results to stay in this range next year.
“ASIC is getting better and better at targeting the most at-risk audits in the reviews,” he said.
PwC assurance leader Kristin Stubbins said workplace culture was critical to improving audit quality, especially when it came to managing workloads and meeting deadlines.
“During COVID, we also tried to focus as well as we could on wellbeing, and we tried as much as we could to prioritise staff wellbeing over deadlines even if that meant sometimes going to our clients [and revising timelines],” she said.
PwC also outsourced portions of audit work offshore during the pandemic to help prevent staff shortages from compromising quality and called in experienced staff in overseas PwC offices such as Singapore to help out virtually, she said.
