Audits must improve

6th November 2019.

James Salmon, Operations Director.

Audits must improve is the conclusion of the Financial Reporting Council.

For those of us who are trying to evaluate customers credit worthiness, this is a key issue as we want to be sure of the validity and accuracy of the financial statements presented by auditors.

Auditors must improve their challenge of management, FRC says

The Financial Reporting Council’s (FRC) Developments in Audit report has concluded that audit quality is still not consistently reaching the necessary high standards expected, particularly when challenging management and performing routine procedures such as revenue recognition.

The FRC is working with audit firms to ensure quality improves and will hold firms to account where remedial action is not taken to an appropriate level or on a sufficiently timely basis.

AQR inspection reports show that auditors continue to struggle most with challenging management sufficiently, especially in more judgemental areas, such as long-term contracts, goodwill impairment or the valuation of financial instruments.

Other shortcomings were identified in more routine audit procedures – notably in relation to revenue recognition.

The FRC’s executive director of supervision David Rule commented: “Inconsistent quality erodes confidence in the profession, which can lead to diminished trust in business.

Stakeholders (such as suppliers – CPA) and investors rightly demand high-quality work on all audits.” He added: “At a time when the whole audit market faces reform, we expect audit firms to make audit quality their number-one priority and to have effective programmes of work to deliver consistently high standards.”

FRC to publish audit grades

The Financial Reporting Council is planning to publish summaries of its annual audit quality inspections, with the watchdog’s annual review currently not identifying the auditor and company behind different grades.

A pilot study will look at audits from March next year, with companies and audit firms having to give their consent for their names to be published.

It has been noted that PwC, Deloitte, KPMG, EY, Grant Thornton, BDO and Mazars fell short of the regulator’s quality target for FTSE 350 companies, with a requirement for 90% of inspected audits to be classified as good or requiring no more than limited improvements.

Audit shake-up spurs unprecedented level of demand for mid-tier firms

Weakened confidence in Deloitte, PwC, EY and KPMG may open up opportunities for smaller accounting firms, noting proposed reform of the sector and its regulation.

The  Competition and Markets Authority has called for joint audits, adding that an increasing number of large companies are approaching firms outside the Big Four.

FRC calls for longer view on company risks

The Financial Reporting Council has said that companies must take a longer view in spelling out to shareholders the risks they face from issues such as Brexit and climate change.

Companies currently set out in annual reports why they think they can remain a “going concern” for the next 12 months, but the FRC wants them to take a longer view.

How companies have justified their going concern assessment has become a political issue after the collapse of travel firm Thomas Cook, prompting the FRC to take a tougher stance.

“The FRC expects companies to think beyond the period covered by their viability statement and identify those key risks that challenge their business models in the medium to longer term and have a particular focus on environmental issues,” the regulator said in a statement.

The FRC said that in times of uncertainty, whether created by political events, general economic conditions or operational challenges, investors look for greater transparency in corporate reports to inform their decision-making.

“We expect companies to consider carefully the detail provided in those areas of their reports which are exposed to heightened levels of risk; for example, descriptions of how they have approached going concern considerations, the impact of Brexit and all areas of material estimation uncertainty,” it added.

UK audit market dominated by Big Four

Research by the Financial Reporting Council has revealed that the Big Four have increased their share of the UK audit market, with 100% of FTSE 100 companies now audited by the UK’s largest accountancy firms, up from 96% in 2017.

The latest edition of Key Facts and Trends in the Accountancy Profession shows that the Big Four increased their combined “total fee income” by 4.7% to £10.95bn and “audit fee income” by 1.7% to £2.1bn.

By contrast, total fee income at non-big four public interest entity audit firms fell by 8.1% and ‘audit fee income’ fell by 6.3% (compared to a 3% increase in 2016/17). The average audit fee income in 2018 for all firms with public interest entity clients per responsible individual was £1.46m, an increase of £0.16m (12.3%) from 2017.

The number of audit firms registered to carry out statutory audit work in the UK and the Republic of Ireland (ROI) fell by 4.7% in 2017/18, down from 5,660 to 5,394. This is in part due to a decline in both the number of sole practitioner audit firms (down from 2,733 to 2,558) and firms with 2 – 6 Principals (down from 2,618 to 2,534). Meanwhile, members hip of the accountancy bodies continues to grow – the seven bodies overseen by the FRC have over 365,000 members in the UK and the ROI and almost 550,000 members worldwide.

The average annual growth in the UK and the ROI between 2014 to 2018 was 2.2% and 3.1% worldwide.

Time Big Four dominance was challenged

Several commentators have pointed out the Financial Reporting Council’s data showing the Big Four dominance of the FTSE 100 audit market.

They say the data should spur MPs to legislate for the new regulator (Arga) so the Big Four’s “cosy lock-up” can finally be challenged.

Others note some of the fines imposed on the Big Four and references EY’s money laundering scandal uncovered by the BBC, while highlighting at some of the measures taken by the firms to get ahead of possible reforms, such as the “operational split” proposed by the CMA.

Business secretary Andrea Leadsom was told by Ian Peters, chief executive of the Chartered Institute of Internal Auditors, that “urgent action” was needed to reform the sector.

Accounting professor Prem Sikka, of the University of Sheffield says: “The worrying issue is that there is still a market out there for dud audits and companies are still willing to pay a high price for that. Despite the headlines, they think these are the only firms they need. It shows we need urgent action.”

David Herbinet, head of audit at Mazars, said: “The FRC’s latest figures reinforce the fact that there is insufficient choice and resilience in the listed audit market.”

Added 8/11/2019 – FRC chair’s split call welcomed

Financial Reporting Council chairman Simon Dingemans says separating audit operations at the Big Four – “if not the bigger six” – is a “critical” step needed to improve the quality of audits.

The Daily Mail’s Alex Brummer has welcomed Mr Dingemans’ call for an operational separation of audit and consultancy business at PwC, Deloitte, EY and KPMG, saying “the Chinese walls between the two functions simply don’t work”.

He adds: “The cosiness between audit firms, which often advise on directors pay, is among the reasons why remuneration and governance has gone haywire.”

Elsewhere, Matthew Vincent in the FT also lauds the motives of splitting firms into audit and consultancy arms, saying it would see audit practices “have to stand on their own feet”.

Do you sell on credit?

With pressures on the cash flow it is essential that you stay on top of the credit limits you grant customers and watch carefully for any late payments.

Those customers will look for the easiest option  to boost their cash-flow. Don’t let it be you.

You can’t just assume your customers can and will pay you eventually, no matter how big their name is.

It is essential to have credit management systems in place to monitor and check your customers credit worthiness.

It is also best practice to use a trusted third party like CPA to make sure you are paid on time by customers, no matter how good a name they have.

About CPA

The Credit Protection Association can help!

Formed in 1914, CPA has been providing credit management services to SMEs for over 100 years.

At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.

We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports however predict approximately 96% of company insolvencies long before they arrive.

Companies in trouble usually have very bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.

If you supply on credit, help us help you identify the risks.

Why use a third party collector?

As a third party collector, we can also get your payments prioritised over those who are not as hot on collections. When your customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.

Over the years we have collected billions in overdue invoices for our customers.

Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.

You might be hesitant about contacting a debt collection agency. What are they going to be like?

Can they help your particular type of business?

There is no need for concern. CPA are courteous, helpful and very probably have had direct experience of working with your type of business.

Debt collection agencies are not all alike.

Success lies in both recovering money and keeping customers happy. The Credit Protection Association was founded in 1914 and  has helped tens of thousands of UK businesses to collect outstanding payments and reduce the risk of incurring bad debt. We believe that creditors deserve to be paid for the work or goods they have supplied but we fully understand the need to maintain
the best possible relationship with customers!

At The Credit Protection Association, we provide solutions, advice and back-up in all areas relating to the supply of services or goods on account. Client-members receive everything they need from a single source to reduce debtor days and write-offs.

The Credit Protection Association has helped has assisted tens of thousands of UK businesses with their credit control requirements, since the First World War.

We are polite, firm and efficient when it comes to recovering outstanding debt.

“We have used CPA for a number of years now. The website is easy to navigate around with lots of helpful reports. The staff are always at hand and very friendly. CPA has  helped us reduce our debt over the years and keep track of potential issues with our customers.”
~ CPA client in Buckinghamshire

“The service from CPA has proved to be everything that you said it would be. We have already seen a huge benefit. We have had a number of overdue accounts paid promptly and directly to us. It is also a huge weight off our mind to know that once we have passed an overdue payment over to you, you take care of everything whilst keeping us informed.
~ Credit Controller client in Warrington

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections


Ready to speak to an advisor?

For help or advice on credit management, entirely without obligation.

Call us today

0330 053 9263

CPA is passionate about late payment

The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.

We are extremely passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties being the single biggest killer of Britain’s small businesses.

If you were regularly paid late we can help. Those former customers used you to boost their own cashflow, regularly paying you late.

As a result you had extra costs, you had the distraction of having to chase payment, you had opportunity costs because your capital was tied up in their late invoices.

Under little used legislation, you are entitled to compensation for those late payments.

Now you can boost your own cash-flow.

CPA can help unearth the those hidden treasures.

We have the technology to reveal the compensation you are due and we have the extensive experience and expertise to then turn those claims into cash.

Yes, CPA can help you boost your business cash-flow.

Don’t let your bankers control you, contact CPA today.

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections

Read our blog here on how to crack down on the late payment culture.

Read our blog here on how to give late payers the slap they need.

The “Why” of the late payment culture.

New PM should walk the walk and back small firms over late payments

Paying late is “crack cocaine” to big business.

Late payment culture risks “spiraling out of control”

visit our late payment compensation page

See our full blog and FAQ on late payment compensation

Do you realise you could be sitting on a fortune?

Late payments often result in a cash flow crunch and leave SMEs in need of a cash injection.

If you sold B2B on credit then there may be a hidden source of capital you can call on.

If you fancy an bit of extra cash in your business, rather than jumping through hoops with your bank, you could look to uncover the resources from an unexpected source within your own business.

Not many are aware but there could be a hidden fortune within your business, sitting there, just waiting to be uncovered and released.

We can help you uncover the pile of gold, you didn’t even know you were sitting on.

If you trade with other businesses and were often paid late then you could be entitled to significant compensation.

Under little known and under-utilised legislation your business could be due huge amounts in compensation that you didn’t even know about.

Let’s be clear – this is not a way to weaken any customer relationships you value. It is one that identifies who’s been paying late and then recover the potentially significant sums in compensation using Late Payment Legislation from businesses where the relationship has already ended.

You can pick and choose who you want us to follow up – but once we’ve agreed which companies you’d like to pursue compensation from it’s a fast process and there’s no financial outlay to you whatsoever. My team at CPA put its expertise to work to recover the compensation due and fight late payment culture.

That compensation could provide the cash boost your business needed.

But don’t delay, that compensation evaporates if not claimed within six years of the late payment.

How can CPA help?

CPA has developed a unique technology to dig into your accounting records and discover the cash injection you are due by means of compensation. The software does all the hard work. Our software interacts over the cloud with over 300 different software packages, working directly with your accounts package, just so long as it’s stored on a computer.

We recognise that most companies do not have the resources to spend time on the identification and calculation of Late Payment Compensation. Our service can produce an Analyses within just a few days with (usually) less than 30 mins of co-operation from our clients. We work directly with over 300 accounting packages but can also work with bespoke accounts packages. Indeed, speed is essential as the oldest invoices may fall foul of the 6-year time limit.

Once the Sales Ledger Analyses is made available to clients, all that is required is that management decide which commercially sensitive ex-customers to remove from the list and return it to us.

CPA then uses its years of collection experience to explain and recover the Late Payment Compensation Claims. Clients do not handle any part of the recovery process as our team will take all communications from the companies against who the claims has been made. Often, it’s simply a case of explaining the legislation, sometimes we have to go all the way and enforce the legislation through the courts.

The result is that we are realising clients’ claims worth tens and sometimes hundreds of thousands of pounds which, of course, is pure net profit.  You may also be among the recipients of “hundreds of thousands of pounds” should you elect to take advantage of our services.

We do the work, you receive the cash.

If you have supplied goods and services to businesses on credit and were regularly paid late then you could be due significant sums in late payment compensation.

We are talking to companies and unearthing claims in the hundreds of thousands from former business customers who paid them late. Large business customers who abused their power to inflict unfair and sometimes illegal payment practices.

We are helping business owners  who are looking to boost the returns from their business before they retire. We are helping businesses who have lost major clients after years of loyal service to get properly compensated for systematic late payment. We are helping companies that were looking to close down, who looked insolvent and finding that cash injection they need to avoid insolvency.

Those former clients who regularly paid you late can finally be made to pay.

Ready to speak to an advisor?

For help or advice on credit management, entirely without obligation.

Call us today

0330 053 9263

The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections

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See all our latest news here!

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections