Read our privacy policy to learn more. Many audit firms have invested heavily in audit quality in recent years, with encouraging results. Franzel acknowledged that audit firms generally have dedicated significant resources toward responding to PCAOB findings by remediating deficiencies and improving their quality-control systems. She said that to varying degrees across the large firms, the PCAOB has observed improvements in tone at the top; coaching and support to audit teams; training; and monitoring of quality.
Choose clients carefully. Manage personnel effectively. Firm policies can ensure that people get assigned to the right jobs for their qualifications, that the necessary training is provided, and that personnel with the right qualifications get advanced. We look at: Owning audit quality, including the audit quality supply chain, the characteristics of audit quality, and correlating Audit Quality Indicators with audit quality.
Behavioural aspects of audit quality, including stand-backs, scepticism, suspicion and skillsets, the use of specialists and the characteristics of a strong audit team, and the implementation of root cause analysis. Structural drivers, including oversight and reward, transparency reports and the role of investors, and the role of standards and audit technology.
This essay recommends seven steps forward. Boards should do more to ensure that audit committees are properly equipped to provide a robust level of challenge to management and auditors. Audit regulators should do more to align the behaviours of audit inspectors with their aims and objectives. Audit regulators, audit committees, investors and auditors need to work together to develop a framework and methodology for the calculation and reporting of Audit Quality Indicators. Audit firms should continue to develop tools and techniques for flagging and managing manipulative and deceptive behaviour.
Auditing standard-setters and policy makers should consider the additional tools auditors need to deal with such behaviour effectively. Supporting International Standards. Robert Knechel , Amir Ghandar October 1, Collectively, the members of IFIAR have varying audit oversight responsibilities in their own jurisdictions, and inspections are a common and powerful tool for fostering audit quality by the members of IFIAR.
Since the beginning, inspections have generally identified a high rate of findings in inspected files. As audit regulation has matured, one might expect that the collective inspection of audits over many years will have fostered an increase in audit quality. At the same time, many users, preparers, auditors, and individuals in governance perceive that audit quality has improved significantly in the past two decades.
There are a number of reasons why the public perceives that there has been limited improvement in inspection outcomes in spite of the general perception among users, auditors, and the governance community that audit quality has improved over the past two decades.
We will discuss six possible explanations for this divergence:. An audit inspection generally focuses on the audit process to make sure that auditors have conducted appropriate tests and provided adequate documentation of their conclusions. An inspection finding in the audit process does not suggest that there are undetected material misstatements in the financial report.
That is, a finding is not the same as an audit failure. An auditor can learn from inspection findings but very few result in a financial restatement or modified audit opinion. This risk selection applies to both the engagements selected, as well as the areas of the audit to be examined. Risk-based selection means that audits chosen for inspection are the most likely to have problems in the eyes of the regulator. This risk-based approach is important in regulatory best practice simply because regulators cannot directly inspect all aspects of an audit, so must focus their efforts where issues are more likely to be unearthed.
They are not necessarily representative of the average audit conducted by an audit firm. The essence of this assertion is undermined by some simple math.
In short, while audit firms may prefer to avoid any findings, their overall performance depends critically on what the underlying rate of inspection findings is in the unsampled pool of less complex or less risky engagements. Lack of a stable audit quality target : In the early days of auditor inspections, neither the audit firms nor the regulators were quite sure how an inspection regime should be implemented.
There was a learning curve on both sides. The early focus was likely on the conduct of test procedures. This focus was eventually supplemented with a concern about risk assessment and planning. As inspectors became more comfortable with those aspects of the audit, they began to include more consideration of the evaluation and testing of internal controls at least in the US.
Thus, the learning curve and focus of inspections have evolved over time as inspectors expanded their consideration of different aspects of the audit process. Also, because of risk-based selection, what an auditor may have learned in one inspection in one area of an audit may not have led to improvements in areas that would be the subject to future inspections. The initiatives in action plans should vary from firm to firm, taking into account the circumstances of each firm and its assessment of the underlying causes of any deficiencies in audit quality.
Plans that are too high level and general, without specific documented actions, responsibilities and timelines, are less likely to be effective. Initiatives undertaken by some firms that appear to have a positive impact on aspects of audit quality include:.
Table 2 provides some specific examples of other initiatives to improve and maintain audit quality that might appear in action plans. Firms should consider developing, or continuing to apply, measures to assist in monitoring and driving their implementation of initiatives to improve audit quality.
Information Sheet Audit transparency reports INFO discusses the use of audit quality indicators in the context of public audit firm transparency reports. The focus in the information sheet is on ensuring that any indicators are not used in a potentially misleading manner.
We encourage firms to critically review and evaluate their action plans regularly and update the plans with a focus on matters such as:. Audit firms might consider reviewing their staff structure over time, to ensure the firm has access to resources with appropriate experience and expertise for audits involving increasingly complex client businesses, financial reporting and other requirements, audit judgements, and audit approaches.
This includes the impact of technological change and the greater use of data analytics, robotics and machine learning systems. The traditional pyramid structure — with a small number of experienced partners and a relatively large number of junior staff — may need to change.
Audit staff with greater experience and expertise may be required. Ensuring the necessary supply of auditors and other experts involves attracting people to the profession, upskilling them, and ensuring suitable levels of staff retention by audit firms. This requires the efforts of a number of parties, including firms, tertiary institutions and accounting bodies.
With markets and companies becoming increasingly global, there may be benefits in firm networks being able to move auditors and experts between jurisdictions to meet demand. Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances may be taken into account when determining how the law applies to you. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.
More releases on financial reporting and audit. Appointment of an auditor Audit inspection and surveillance programs Audit transparency reports Auditor independence and audit quality Audit quality — The role of directors and audit committees Audit quality - The role of others Improving and maintaining audit quality Internal audit Whistleblowers - company auditors obligations Liaison with auditing profession ASIC audit inspections.
You are here: Home Regulatory resources Financial reporting and audit Auditors Improving and maintaining audit quality. The statement details The relief relates
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