Tesco,
Britain`s biggest supermarket, said in September it had overstated its
first-half profits by 250 million pounds due to incorrectly booking
payments from suppliers, a figure it later raised to 263 million pounds.
"We
will pay particular attention to the extent to which the audit team has
challenged and checked the
appropriateness of how these arrangements
are accounted for," said Paul George, executive director at the FRC.
Routine
supervision also uncovered complex arrangements between suppliers and
customers entered into financial reporting and audit risks, he said.
This work will be part of the FRC`s annual inspection of audits from a sample of blue chip companies.
The
watchdog will also inspect a number of first-year audits to assess the
extent to which changes in a company`s accountants have an impact on the
quality of auditing.
Reforms in Britain and the European Union
are forcing companies to switch their accountant every few years after
some firms kept the same auditor for decades, raising questions about
independence.
George said some companies have expressed concerns
that switching auditors brings risks and the FRC will examine if there
is any evidence to back such views.
"My personal view is that a change in auditor presents an opportunity for improvements in audit quality," George said.
"We
might be able to provide more confidence to the market that actually
these audits have been, by and large, conducted to a higher standard
following the change."
The FRC on Friday published its latest
annual report on checks of 109 company audits, saying quality had risen
to record levels but a third still needed improvements.
The watchdog used new powers for the first time in its annual checks to fine two accounting firms for deficiencies in auditing.
EY,
one of the world`s "Big Four" accountants, was fined 52,500 pounds, and
French accountant Mazars hit with a 10,400 pound penalty.
"More
importantly than the fines, we are imposing conditions as well around
methodology and training. In some ways writing a cheque is
straightforward, but the actual conditions attached to the fine require
clear action on the accounting firms to up their game," George said.
Reuters
First Published: Friday, May 29, 2015, 11:38