The firm of auditors which is currently carrying out the annual audit of the London Borough of Hounslow has been criticized by the industry’s regulator. Mazars, who were appointed last year, is currently in the middle of carrying out an external audit of the council’s financial systems. It is a legal requirement that councils are independently audited, and that firms carrying out financial audits are themselves regularly inspected.
The industry’s governing body, the FRC – Financial Reporting Council – says that in the last review cycle only 60% of Mazars audits were assessed as ‘good’. Overall the FRC’s found that 75% of all audits carried out by accountancy firms were assessed as being ‘good’ or requiring limited improvement. In Mazars’ case the FRC inspected five audits and found three (60%) were good or required limited improvements, one (20%) audit required improvements, and one (20%) audit required significant improvements.
The period of assessment covers the weeks around the end of year 2017; the FRC noted as a particular concern that Mazars had not improved in areas they highlighted in previous reports. The previous assessment of Mazars considered 80% of their work to be good, so this represents a considerable drop in standards from one year to the next.
According to trade magazine Accountancy Daily, Mazars blames high turnover of staff in its specialist team and the time it took new staff to get their heads round the firm’s audit methodology. The company has now hired an experienced IT audit partner to address one of the specific criticisms.
They were appointed to carry out the Hounslow audit when their rating was 80% and a source on the council has told me that Hounslow officers are concerned about the audit firm’s drop in performance.
Mazars told me:
“The Financial Reporting Council (FRC) rightly applies intense scrutiny to the audit files it reviews, and has identified audit processes which fall below the uncompromising standards which should be expected. We support the efforts of the FRC in demanding improvements in the quality of the audit work performed on Public Interest Entities, and we know that confidence in audit can only be achieved through measurable improvements in quality.
“Our root cause analysis on the findings noted has generated clear and practical changes to our processes, which run hand in hand with our proactive work to continuously improve training, culture and systems, supported by significant additional investment now and in the future”.