This week the Financial Research Council (FRC) released its Audit Quality Inspection reports for BDO and Grant Thornton UK. In the reports, the FRC chided both firms for failing to show an appropriate “professional skepticism in key audit areas.”

• For BDO, these areas included a failure, in one audit, to challenge the inputs to management’s impairment model and, in another, to challenge management’s value of certain assets on a fair value basis.  BDO’s audit team also failed to question management’s omission of a “key assumption” in their goodwill impairment calculations and failed to investigate sufficiently why a director’s valuation of a certain asset exceeded a third-party valuation.
  
  
• The FRC found fault with Grant Thornton on five out of 10 audits related to its review of financial assets and intangibles, the carrying value of fixed assets, and the loss of audit work papers. Moreover, on several audits, the firm requested but did not receive third-party confirmations in relation to certain investment securities, cash and cash equivalents, and bank loans, and did not perform adequate alternative procedures.

The FRC will publish an annual report as well as individual inspections on Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers by mid-June, according to a release (which also links to the BDO and Grant Thornton Reports). These publications will conclude its 2012/13 audit inspection cycle.