Page 37 - Inspection Report 2018

OVErALL PrOGrESS

As part of the final stage of an inspection, an audit firm will be issued a Final Inspection Report by the AOB. The
inspected audit firm is subsequently required to submit its remediation plan detailing its proposed measures to
be taken to address the findings raised in the Final Inspection Report.

The AOB will evaluate the proposed remediation plan as to its appropriateness before providing a written
approval to the audit firm to proceed with the implementation of the said plan. The AOB acknowledges that
there is no generic prescription to minimise the risks relating to audit quality and that remediation plans would
differ from one audit firm to the other in accordance with the structure and size. However, it is vital that the
remediation plan is holistic, relevant and sustainable enough to ensure that any shortfall or compromise of
audit quality are appropriately and promptly rectified to ensure high quality and reliable audited financial
statements of PIEs and schedule funds. Should the AOB disagrees with an audit firm’s proposed remedial plan
or any elements of the plan, the AOB would engage further with the audit firm which then will be required to
submit revisions to the relevant areas or even to the extent of submitting a new and completely revised plan.

In cases where severe findings are identified, the AOB may specify measures to be taken and imposed on the
audit firm and/or individual partners.

The remediation plan framework usually includes the identification of root causes and performance measures
for remediation which focus on the outcome and effectiveness of the remediation plan. One of the key ways
to measure the effectiveness of the remediation action is via the number of recurring findings raised in
subsequent inspections. In this regard, it is encouraging to observe that the number of recurring findings for
reinspected audit firms has been on a downward trend in the past four years. A positive development is also
noted in the number of recurring findings where only 2 reinspected audit firms recorded a recurring finding
each, out of 8 reinspected audit firms in 2018.

The marked progress made in relation to the reduction in the number of recurring
findings indicated the effectiveness of remediation actions taken by audit firms to
address the findings raised and the corresponding root causes. This could also be

attributed to the Major Audit Firms’ commitment in having a more structured and
formalised Root Cause Analysis framework, ensuring in-depth and independent
analysis and identification of the actual reasons behind the occurrence of a finding.

Notwithstanding the improvement as highlighted above, audit firms are reminded
not to trivialise a recurring finding as merely a one-off and isolated incident attributable

to a particular situation or individual.

AUDIT OVERSIGHT BOARD
ANNUAL INSPECTION REPORT 2018 35

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