Big Four audit standards come under the microscope

Although the quality of audit standards is still in an upward trajectory, the Financial Reporting Council recently revealed that 10 % of a sample of audits signed off by the Big Four accountancy groups fell into the lowest category creating “ significant concerns “.
Most of this criticism seems to centre on the inability of auditors to be sufficiently sceptical when it comes to accepting excuses and forecasts presented by company managers. Assumptions about sales revenues in a conspicuously recessionary environment were found to have been particularly flawed. 
Something else which comes through loud and clear from the report is that auditing in general has fallen down the pecking order within the Big Four with less than a third of their total revenues  now originating from audit work. There is clearly a reluctance to increase audit fees in these recessionary times and the larger firms are consequently trying to boost profitability by reducing the number of audit hours spent on each client. They have also been attempting to reduce related costs by outsourcing work to India and Eastern Europe.
Of course, there is nothing wrong with improving productivity through greater efficiency but there are signs emerging that standards of work might be being compromised by the relentless quest for cost-savings. Moreover, since auditing seems to be a lower priority for the big firms these days, there is evidence that audit staff are being judged more by the value and volume of other services cross-sold to client companies rather than by the quality of their actual audit work. It’s almost as though auditing has descended into being a virtual loss-leader designed to tempt clients into other more glamorous and remunerative accountancy services like IT consultancy.
Of course, the poor old client companies who are the ones caught up in all this crossfire might start to ask themselves why they need to put up with suspect auditing standards when they can get the same work done by top, second tier firms who might appreciate this aspect of accountancy work more. The problem is, of course, that most large corporates are publicly quoted companies where a Big Four audit is almost obligatory. While this might indeed be the case with global behemoths, there may be a bit more scope for the next category below to shop around.