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Audit of revenue 'is a weakness’
Do the big firms need to do more training in the audit of revenue?
The audit of revenue appears to be a key ‘weakness’ of many of the audits looked at as part of the FRC’s audit quality reviews of the six largest firms.
The FRC said in PwC’s report that revenue is an important driver of an entity’s operating results and auditors need to evaluate and address fraud risk in relation to revenue recognition. It goes on to say that a failure to perform sufficient audit work in this area increases the risk that auditors will not identify a material misstatement of revenue in the financial statements.
It told KPMG that insufficient revenue testing was performed on three of its audits. On one audit the analytical procedures and control testing did not provide sufficient audit evidence.
In the other two audits only the recognition of revenue in the correct period was tested in detail, without testing the underlying revenue.
The FRC now wants to see KPMG reviewing its methodology and training for the audit of revenue.
The FRC said there was an overall improvement in its assessment of Deloitte, EY, Grant Thornton, and PwC, when compared with last year. But half of the eight audits reviewed at BDO ‘required improvements’.
There was a significant increase in the number of audits reviewed at KPMG this time around. Two audits were assessed as requiring significant improvements and a further six required improvements. The FRC said it needs to see an improvement in “the scope and depth of the audit work performed by certain of the firm’s specialists”.
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