AIU Expressed its Serious Concerns Regarding the ERNST &YOUNG’S Calculation of Impairment of Goodwill and Staff Inefficiencies
FRC’S unit AIU (AUDIT INSPECTION UNIT) inspectors expressed its concern to Ernst & Young that they need to provide more special training for audit teams after assessing the weakness in audits of E&Y in relation to goodwill impairment and the assessment of the rationality of growth rates and methodologies used by the management in their projections
AIU said that in its report which has published earlier this week outlined that the auditors of E&Y don’t fully understand the accounting and reporting requirement in the area of goodwill and intangibles assets.
AIU report also contained that the due to the lack of understanding the audit team s unable to identified the mixing of pre and post-tax cash flows which used to calculate the value in use, accepting impairment reviews based on profit forecast rather than cash flows, failed to identify incorrect or incomplete calculation of carrying value of the assets being tested for impairment and failed to understand the calculation of appropriate discount rates.
AIU also expressed in its report that the firm failed to obtain sufficient appropriate audit evidence related to the effectiveness of internal controls and also outlined that the firm failed to identify the risk related to revenue recognition so the extra audit procedures are required to perform with this.
AIU expressed its number of concerns regarding the quality of audit which are shown below
· E&Y should train its staff to calculate and identify the impairment of goodwill and intangible assets
· They need to improve in analytical substantive procedures while performing the audit.
· Threats and safeguards related to the independence were not be considered in the number of approved non audit services .firm should have to undertake professional code of conduct before and during the audit .
· Partner should evaluate the performance of audit staff to ensure that the audit is performing in accordance with applicable audit standard.
· During the audit, auditor should communicate with the audit committee if audit team finds any error in the record audit committee can assist them accordingly.
- EY Set to Replace Deloitte as Tullow Oil’s New External Auditor
- PwC pays £253m to Settle Claims of Professional Negligence
- Deloitte Wins CRH Audit
- EY is expected to Replace KPMG as New Auditor of Aston Martin
- Vodafone Replaces PwC with EY as its New External Auditor
- EY Replaces Deloitte as Capital Group’s New External Auditor
- Need to ‘think small’ on audit standards