Audit Monitoring Report 2025 Review – The Continuing Story Towards Stronger Audits

The ICAEW have recently issued their annual Audit Monitoring Report This summarised the results of the monitoring visits completed for the year ended 31 December 2024 and looked at the quality of audits completed by a range of firms. In this blog, we take a look at the main messages coming out of the report and areas audit firms may want to focus on going forward.

What are the results?

For this year’s monitoring visits, the ICAEW completed a reviewed a total of 401 forms from across 790 audits. Overall, 67% were rated to be either good or generally acceptable, the results for this year being slightly down on the prior year, where 71% achieved the same rating. The number of audits deemed to require significant improvement remained lower at 10%.

What are the key findings?

Whilst the majority of files were rated to either be good or generally acceptable, the review identified a number of areas of common weaknesses which audit firms may want to look at and consider whether their current audit processes are sufficient to meet the ICAEW expectation of the work to be performed.

We look the common weaknesses identified below.

Risk assessment

Amongst the ICAEW’s more significant concerns were audited entities with complex IT systems where little consideration of the systems and the impact on the audit evidence obtained had been carried out by the audit team. In addition, it was identified that, in some cases, audit firms had made judgements that certain balances or audit assertions were ‘low risk’ but the justification for this assessment was insufficient, leading to concerns about the lack of underlying audit evidence.

Fraud and error

A number of audit firms have adopted technology to help assist their audit work on journal entries as part of their response to the presumed significant risk of management override of controls under ISA (UK) 240. However, it was identified in some instances audit firms had not considered the parameters used by the software to identify outliers and instead relied upon the default settings within the software which may not have been appropriate for the audit entity.

Estimates and judgements

The ICAEW accept that estimates and judgements are an inherently difficult area to audit and, as such, this often features as a factor behind weaker audit work. However, the work on these areas still needs to be considered and thought out to ensure the risk associated with the estimate and/or judgement is addressed, and the regulator has highlighted that simply completing a checklist will offer limited assistance in achieving this.

Use of experts and service organisations

Where an expert is engaged, either on behalf of management, the auditor or both, or the client uses a service organisation, there are requirements for the auditor to gain sufficient understanding of what the expert or service organisation is doing, however this understanding has not always been appropriately documented by audit firms.

Substantive analytical procedures

It has been highlighted that where audit teams intend to place reliance on substantive analytical procedures, these should be completed by suitably experienced members of staff to ensure the evidence obtained from the review provides the necessary understanding of the audit client, as too frequently this work is carried out by inexperienced staff who perform the work poorly, using simple comparisons to previous years or applying generic inflation to form their expectation.

Sampling

The ICAEW’s more significant concerns about sampling are generally centred around very low, unjustified sample sizes, reduction in sample sizes taken from non-existent evidence obtained from substantive work or test of controls or a sampling methodology that is applied that has no chance of selecting from a material subset of the sampling population.

Why did these issues arise?

As part of the root cause analysis, the ICAEW identified that typically the main cause of these weaknesses was the role of the responsible individual and resource challenges leading to pressure on the responsible individual’s capacity.

Other highlights

Whilst not common, instances of independence threats where sufficient steps had not been taken to mitigate these were identified. Ineligibility for audit registration in some firms was identified due to non-compliance with audit regulations regarding audit firm control.

As highlighted in the root cause analysis, ensuring engagement teams are supplied with the necessary resources, whether this be qualified and experienced members of staff or sufficient time to complete the audit work required, is a key step towards completing good quality audit work.