FRC criticises financial services audits

The Financial Reporting Council (FRC) has criticised the standards of audits of financial services firms, although the body suggested the overall quality has improved over the last 12 months.

FRC chief executive Stephen Haddrill presented headlines from the organisation's annual report at its open meeting, reports Professional Pensions.

"We found more good, top-quality audits than we had the previous year, but we also found more bad ones, which was not entirely satisfactory," he explained.

Audit inspections were conducted at eight banks, six building societies and one insurance company over the course of the year, with two of the building societies criticised and serious improvement called for. 

A non-listed bank also came under fire for not implementing a number of suggestions raised following its last examination.

Looking to the future, the FRC called for financial institutions to "to challenge auditors to demonstrate the steps they have taken to achieve these improvements".

PIRC head of governance and financial analyst Tim Bush pointed to the glut of recent high-profile problems suffered by organisations including the Co-Operative as evidence that more needs to be done to improve audit standards across the board.

"The Prudential Regulatory Authority has had to go in and do prudent valuations. That in the case of Co-op has been large enough to be relevant to going concern. The fact that the audit had not revealed this begs fundamental questions about their approach, including going concern[?]," he declared.

Corporate reporting has been placed under a great deal of scrutiny in recent years, with calls for a more integrated approach that could ensure businesses perform well on a range of levels, including environmental issues and employee wellbeing.

A recent whitepaper from the FRC stressed that "holding management to account" remains the most important part of financial reporting, however, meaning that statements should provide information that is useful for doing this rather than making this an ancillary part of the report.