Banking sector overseers are, of course, not alone in confronting the challenge of how best to put reliable quantitative metrics to squishy qualitative questions. The audit industry has been wracked in recent years with many of the same culture and conduct related challenges discussed here.1 Inadequate audit work has been implicated in the collapse of companies such as the German payment processor Wirecard and the British multinational construction company Carillion, among several others, with consequences that include the loss of thousands of jobs, the destruction of billions in value, and, in some cases, criminal charges. Many have argued that culture problems in the audit profession are to blame.
In its annual Developments in Audit report for 2021, the UK’s Financial Reporting Council reported that about a third of the audits it had inspected either required improvement or required significant improvement.2 “The results of our Audit Quality Reviews and recent enforcement cases once again highlight deficiencies relating to lack of professional scepticism by auditors, including failures to sufficiently challenge management’s assumptions, as well as evidence of the poor application of professional judgment,” it reads. “The persistence of these issues over time is disappointing given that they are fundamental to the mindset required to deliver effective audits.” [point to piece by Sarah Rapson in 2022 report]
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