Greater consideration must be made by auditors into embedding a culture where integrity and professional scepticism are fundamental to their work, according to a new report by accounting watchdog the Financial Reporting Council (FRC).
Its report, Audit Culture Thematic Review, notes that additional prominence be given to underpinning key tenets of good audit practice into firms’ overall culture, including objectivity, independence and scepticism.
All audit partners and staff must appreciate that a good audit is of “significant societal value” and supports transparency in the business world.
However, while poor work must be sanctioned, the FRC wants more recognition given to high-quality audit work. They should also consider developing their techniques for rooting out what leads to either a good, or poor, audit.
“More should be done” by firms to promote and embed good culture, said Melanie Hind, executive director of audit and actuarial regulation at the FRC.
“There are many factors that influence the environment within which auditors make their decisions and act. Therefore, it is vitally important that firms create an audit culture where achieving high-quality work is valued and rewarded, and which emphasises the importance of ‘doing the right thing’ in the public interest.”
Non-executives appointed to the firms should play a bigger role in monitoring their attempt to embed culture into the practice, the reports suggests.
The FRC will, in future, monitor and review firms’ progress on auditors’ culture. Last month the FRC announced deeper monitoring of the six largest audit firms, in a bid to avoid “systematic deficiencies” within their networks and across the business ecosystem they operate within.
The regulator is itself set to face a major review instigated by government, to be undertaken by Sir John Kingman.