Page 41 - Inspection Report 2018

CONCLuSION

Results of the AOB’s inspections in 2018 revealed that while there was a decrease in the percentage of inspected
engagements with significant improvements required for Other Audit Firms, there was still a wide gap in the
overall performance of Other Audit Firms as compared to Major Audit Firms. Further, the severity of findings
noted from the first time inspections of several Other Audit Firms has necessitated the AOB to take stern
actions against the audit firms and partners involved, including the imposition of certain additional registration
conditions on an inspected audit firm and its individual auditors, pending the conclusion of enforcement
proceedings. This severe action was taken for the first time by the AOB due to the severity of the inspection
findings and to mitigate potential risks of future failure and potential impact to the capital market.

Also for the first time, actions were taken against EQCR partners involved in inspected engagements with
severe findings. It is acknowledged that an engagement partner is ultimately responsible for the quality of an
audit. However, individuals acting as the EQCR partner should also be fully aware of their roles in relation to
significant matters and significant judgment areas in the financial statements.

The AOB noted that the less than desirable performance of some of the Other Audit Firms stemmed from
design and implementation gaps within the audit firms’ system of quality controls. The AOB also observed
that inspected engagements with unsatisfactory inspection results tend to have issues with competence of the
engagement partners, experience of the EQCR partner and training of engagement team members.

The AOB continues to remind the fundamental need of having the right

infrastructure, training and technical competence to support audit quality.

On the other hand, it is encouraging to note that there has been a decreasing trend in recurring findings for
reinspected audit firms. This demonstrates the reinspected audit firms’ positive commitment towards improving
and sustaining audit quality, including designing and implementing effective remediation plans and having a
more robust root cause analysis. Notwithstanding this improvement, the AOB is concerned that it continues to
observe engagement findings in certain basic and fundamental areas. Sampling in particular has been one of
the top five findings observed from 2016 to 2018 and is one of the two recurring findings identified during the
year. It is observed that findings on this area were identified even when established sampling methodologies
were in place, indicating that the issue also lies with consistency of implementation. Audit firms should ensure
that audit team members are provided with relevant and consistent training to avoid recurrence of these
findings.

AUDIT OVERSIGHT BOARD
ANNUAL INSPECTION REPORT 2018 39

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