BRITISH regulator, Financial Reporting Council (FRC), found a significant decline in the United Kingdom professional services firm, BDO LLP, auditing capabilities, a development that could affect the reputation of firms in the network.
BDO LLP is a member of BDO International Limited, a United Kingdom company limited by guarantee. It forms part of the “network of independent member firms” under the Belgium-based global professional services firm, BDO Global (BDO).
BDO Zimbabwe is a member of the BDO International network.
“BDO must significantly improve its audit quality. The firm has committed to improve and has invested significantly. However, this has not yet resulted in a sustained improvement in audit quality. The firm must continue to consolidate the changes it has made to strengthen its central infrastructure,” the FRC said in its new BDO Audit Quality Inspection and Supervision report.
“At the same time, the firm must focus on the composition and mindset of its audit teams and ensure they are supported by effective training and tools. Improving audit quality takes time.
“However, we may take stronger action, which could include using our PIE Auditor Registration powers, if we do not see improvements in 2025. We will continue to work with BDO to help it succeed, given its strategic importance to the market.”
FRC said the percentage of audits inspected by the FRC requiring no more than limited improvements was 38%.
“Two of the 13 audits we inspected (15%) were found to require significant improvements. These results are worse than the prior year and continue to be unacceptable. Over a number of years, we have highlighted recurring findings related to the challenge and testing of estimates and assumptions, the audit of revenue and quality control procedures,” the regulator said.
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“This year, we also identified key findings in other areas, including the audit of inventory and impairment of goodwill and intangibles. The firm must urgently re-assess its recurring findings to understand why its previous quality actions have not had the impact on audit quality expected. It should also rigorously assess all other areas where key findings have been identified this year.”
In response to FRC’s findings, BDO LLP said it was disappointed.
“The firm is deeply disappointed that our AQR [audit quality review] results, having improved last year, have deteriorated and that they contain recurring findings. We recognise that we must make significant progress, particularly in the areas of recurring findings,” BDO LLP said.
“We recognised it would take time for our transformation programme to positively impact our results, but we expected that, by now, based on our substantial investments in people, methodologies and training and the reshaping of our book of business, they would have improved.”
BDO LLP said they had not realised the anticipated returns from these investments quickly enough.
“However, the investments made have allowed us to respond faster and more effectively as issues have arisen, for example implementing the engagement level remediation programme for in-flight PIE audits,” BDO LLP added.
“Equally, as part of procedures developed during this period of investment, as we became aware of these results, particularly the recurring findings, we identified a programme of additional interventions required to drive clear improvement in each area. These programmes contain granular actions led and/or scrutinised by senior management.”
BDO said because audit quality was underpinned by the system of quality management (SoQM), the limitations in the design of the SoQM had limited the effectiveness of the actions the firm had taken to date.
