ICAEW publishes its Audit Monitoring Report 2020 –what can you can learn from it?

26 October 2020

The regulatory focus on audit standards continues.  The ICAEW has now published its Audit Monitoring Report 2020 , which summarises the findings from the audit monitoring visits of its Quality Assurance Department (“QAD”) in 2019.  What does the Report tell us about audit standards, and does it offer any assistance for firms seeking to improve the quality of their audits?

Have audit standards improved?

The Report explains that steps are required across the sector to bring audit practices up to expected standards.  Unfortunately, given that there was little overlap between the 496 accountancy firms reviewed by the QAD in 2019 and those reviewed in 2017 and 2018, it’s not possible to assess whether the remedial actions suggested in the QAD’s previous reviews have prompted change and improved audit quality.  Whilst the review identified a similar number of files which needed improvements or significant improvements to those identified in 2017 and 2018, without being able to follow trends in particular firms, it’s difficult to interpret whether the QAD visits are having any impact. 

While approximately 75% of QAD visits were closed without follow-up action, a slight improvement on 2018, 16% of visits required some follow up action and 9% of visits were reported to the Audit Registration Committee (“ARC”) to consider whether regulatory action was required.   As we discussed in our previous blog, Audit reviews: the process, pitfalls and published themes – how to get the best outcome when faced with an adverse finding, an intervention by the ARC can have quite significant ramifications; in the most serious of cases, the ARC can withdraw a firm’s audit registration.  The QAD’s referral of around 44 firms to the ARC is a therefore a fairly significant finding.


Focus for improving audit quality

Part 2 of the Report examines key findings from the QAD’s visits and areas which firms should focus on when determining how to improve the quality of their audits.  Perhaps unsurprisingly given the fragile economy in which we are operating, there was a focus on scepticism, particularly in the areas of going concern, long term construction projects and property valuations.  The ICAEW offered some ‘good practice examples’, which could be considered and adopted by firms for impending audits in these unusual times.

The report also details the top 3 most common areas which led to the need for improvement in the audits being identified, as follows:

  • Audit evidence (ISA 500), in particular the testing of revenue, fixed assets, stock and WIP.
  • Audit documentation (ISA 230), where firms have not recorded important aspects of their work on key assertions in material areas, or key areas or judgement.
  • Identifying and assessing risk (ISA 315), where the QAD has not been able to identify how well the auditor understands the client’s business and activities, or that the required design and implementation testing has not been done.  The QAD was concerned that it identified significant risks which had been overlooked by the firm.


Suggested remedial actions

As we suggested in our previous blog, there are a number of ways in which a firm can seek to mitigate the risk of any future adverse QAD outcomes.  The Report identifies two in particular: effective cold file reviews, in which issues are identified and addressed appropriately; and carrying out a root cause analysis when an issue has arisen, to identify its root cause and implement policies and procedures to prevent its recurrence.



It’s unfortunate that the statistics within the Report can’t be used to establish whether there has been either an improvement or a decline in audit standards, as different firms have been reviewed in the last three years.  What is clear, however, is that the QAD’s focus is particularly relevant in times of economic uncertainty.  Given that businesses will undoubtedly be feeling the effects of Covid-imposed changes and restrictions, and often struggling to survive,  going concern will be at the forefront of the regulators’ priorities for some time to come.   The results of the 2020 inspections will be interesting, as auditors will naturally have encountered significant difficulties in carrying out certain audits, due to travel and access restrictions.  Whether that will lead to an increase to the 9% of failing audits seen this year, is yet to be seen.

Access the report here.



For further information on issues raised in this blog post, please contact a member of our Regulatory team in confidence.



Julie Matheson is a Partner in the Regulatory team, specialising in defending professionals in the financial and legal fields.  She has particular expertise in defending accountants and accountancy firms in regulatory proceedings brought by the FRC, ICAEW and ACCA.

Sophie is an Associate, Australian Qualified, in Kingsley Napley’s Regulatory department Sophie specialises in advising regulated professionals on compliance, in investigations and in respect of enforcement action. She also advises regulators on policy, governance, prosecutions and litigation. 


Share insightLinkedIn Twitter Facebook Email to a friend Print

Email this page to a friend

We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

Leave a comment

You may also be interested in:

Skip to content Home About Us Insights Services Contact Accessibility