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Audit firms pass SEC scrutiny but room found for further improvement

The Securities and Exchange Commission says its inspection of eight audit firms found that all of them met quality requirements adequately.

However, there is room for improvement in the area of engagement performance, and if they make progress in this area it will heighten their efficiency and bolster investor confidence in the Thai capital market.

The inspection last year found that all eight firms were up to standards in the six key elements.

The highest average score was in the area of client acceptance and continuance (A&C), where most firms already have in place procedures that take into account client risks including technical competency and their staff's level of relevant experience.

Deficiencies were found, however, on engagement performance (EP), with the lowest average score. This resulted from insufficient involvement of engagement partners and engagement quality control reviewers (EQCRs) and incomplete audit manuals.

The SEC's findings by respective average scores and recommendations are summarised as follows:

Client acceptance and continuance: Some audit firms may need to improve A&C by considering all significant information before accepting any audit engagements; assessing the firms' adequacy of human resources with sufficient skills, knowledge, and capabilities to deliver high-quality audit work; and improving risk assessment criteria to ensure proper discretion.

Human resources (HR): Deficiencies were persistent in some audit firms concerning inappropriate human-resource allocation and inappropriate performance-evaluation criteria. Assigning competent audit staff to each engagement as required by auditing standards and determining performance-evaluation criteria to reflect performance quality could help improve the deficiencies.

Ethical requirements (ER): Compliance in this area was found insufficient in some firms, such as inadequate independence compliance testing due to incomplete identification of related parties and lack of appropriate client acceptance procedures on non-audit service acceptance decisions. Setting proper procedures to identify impacts on independence and possible conflicts of interest was recommended to deal with this insufficiency.

Monitoring (MR): Some audit firms were found to have insufficient monitoring and to lack action plans to monitor deficiency remediation. In this regard, they were recommended to establish monitoring processes and procedures to cover all important aspects of the auditing standards, including analysing causes of such deficiencies and preparing remediation plans to follow up rectification of those deficiencies.

Leadership responsibilities (LD): Overall, despite leaders of audit firms' reinforcement of the importance of audit quality, deficiencies remained in many aspects. The findings demonstrated that firms' leaders should strictly require their staff to concentrate on the implementation of quality-control policies effectively and consistently across engagements.

Engagement performance: Insufficient involvement of engagement partners and EQCRs was found, with inadequate and improper audit manuals, such as audits in areas of high fraud risk and group audits. Accordingly, involvement of engagement partners and EQCRs must be elevated to attain high audit quality, coupled with updating manuals and programmes to bring them up to standard, as well as providing necessary training for staff.

Thawatchai Kiatkwankul, director of the SEC's Accounting Supervision Department, said professionals such as accountants and auditors played a crucial role in helping investors see irregularities in a company through its financial statements. Particularly for sizeable listed companies and securities companies involved with complicated transactions, competent audit teams under a quality assurance system are needed.

To raise confidence in the Thai capital market, audit firms should place priorities on rectification of deficiencies in every element by analysing the root causes and identifying clear solutions and implementation guidelines.


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