It is a question that has been largely ignored since the financial crisis of Instead, initiatives aimed at improving audit quality have focused almost singularly and understandably on what auditors could and should be doing.
The reality is that the auditor can only audit the information provided by management. A more robust and inclusive approach is needed to improve audit quality. The study provides suggestions on how management can contribute to audit quality, including its role in supporting the use of data analytics in the audit.
What makes a quality audit? The answer depends on the stakeholder and how involved they are in the audit process. For example, management is likely to link quality to efficiency, while regulators focus largely on evidence of compliance with auditing standards. According to the study, management reported they derived the most value from the following aspects of audit:. Managers who are not involved in the audit process are most likely to report that the audit itself has limited value.
Further research was conducted to understand successful practices to strengthen the audit process. The good practices identified fell into three key areas:. The amount of data produced annually is multiplying exponentially. With the increase in data, the use of data analytics is increasingly important for the auditor to understand how all the transactions of an entity fit together, as well as to understand normal transactions as compared to outliers.
This includes appropriately challenging key accounting estimates and treatments that can materially affect the reported financial position and results. This view is consistent with the objective of the audit see paragraph 11 of Auditing Standard ASA Overall objectives of the independent auditor and the conduct of an audit in accordance with Australian auditing standards. The quality of financial reports is key to confident and informed markets and investors.
The purpose of the independent audit is to provide confidence in the quality of financial reports. Improving audit quality and the consistency of audit execution is essential to maintaining confidence in the independent assurance they provide.
If a company fails but its financial report did not properly show its declining financial position and results or going concern issues, it is reasonable for questions to be asked about the role played by the company directors and the auditor.
Directors are responsible for the quality of the financial report — which is supported by the quality of the audit — so it is in the interests of directors and audit committees to support the audit process. This includes ensuring that management produces quality financial information on a timely basis, and that the audit is appropriately resourced.
We strongly caution against selecting auditors on the basis of cost rather than to ensure a quality audit. Auditors must obtain reasonable assurance that financial reports are free of material misstatement, apply sufficient scepticism to accounting estimates and treatments, and address any deficiencies detected so that investors and other users of financial reports can have confidence in the quality of the information they contain.
Exercising professional scepticism is a critical part of conducting quality audits. Conducting effective firm quality reviews is key to maintaining and improving audit quality. The effectiveness of these reviews can be enhanced by considering the issues in Table 1. Where ASIC audit inspections or internal firm quality reviews identify that sufficient appropriate audit evidence has not been obtained, firms should remediate deficiencies by obtaining the evidence necessary to support the audit opinion.
Partners and firms should not hesitate to revisit an audited entity to undertake additional work. Undertaking the work necessary to complete their audits for the reporting period in question will ensure that the audit report is supportable and that the market can be properly informed if any material misstatements are detected. Some partners may resist accepting and addressing findings from internal quality reviews and audit inspections.
This could be due to concerns about loss of reputation, impact on performance evaluations and remuneration, possible liability or disciplinary actions, or additional audit costs. While it is important to have a good dialogue between partners and ASIC to ensure that our findings are appropriate, it is in the interests of the partners, firms, audited entities, directors and users of financial reports that findings are addressed.
Firms should have processes in place to require partners to take remedial action. In significant cases where firms do not accept findings and implement initiatives to address them, we will consider issuing an audit deficiency report to the directors or audit committee of the audited entity, or taking other appropriate action. The confidentiality restrictions imposed on ASIC under the Australian Securities and Investments Commission Act were amended in to give us the ability to report findings to audit committees, directors and management of audited entities.
We have issued Regulatory Guide Communicating findings from audit files to directors, audit committees or senior managers RG , which includes our criteria for communicating matters from our audit file reviews to audit committees and directors on an exception basis.
This includes identifying and implementing actions to address those root causes. An effective internal quality review program is essential to this process, including identifying individual engagement issues and thematic findings across engagements. We suggest that firms share, or continue to share, root causes and solutions with other firms in their networks and learn from those other firms. Firms that are not part of networks should consider sharing root causes and solutions with other similar firms locally.
Effective root cause analysis is an important element of developing firm action plans to improve audit quality. Better auditors focus on maintaining audit quality and appropriately balance this imperative with risks and commercial pressures.
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. We selected an important chronic disease encountered in primary care: diabetes mellitus. We identified recommendations from National Institute for Clinical Excellence NICE guidance on conducting audit and generated questions which would be relevant to any attempt to operationalise audit and feedback in a healthcare service setting.
We explored the extent to which a systematic review of audit and feedback could provide practical guidance about whether audit and feedback should be used to improve quality of diabetes care and, if so, how audit and feedback could be optimised. National guidance suggests the importance of securing the right organisational conditions and processes. Review evidence suggests that audit and feedback can be effective in changing healthcare professional practice.
However, the available evidence says relatively little about the detail of how to use audit and feedback most efficiently. Audit and feedback will continue to be an unreliable approach to quality improvement until we learn how and when it works best.
Conceptualising audit and feedback within a theoretical framework offers a way forward. Peer Review reports. A range of strategies exist to promote the uptake of clinical research findings into the routine care of patients.
They seek to change the behaviour of healthcare professionals and thereby improve the quality of patient care Table 1. For each of these strategies a number of trials of their effectiveness have been drawn together within systematic reviews.
The strategies in Table 1 vary considerably in their resource requirements and cost effectiveness and any healthcare system will have finite resources to commit to quality improvement activities. Therefore to make the best use of health service resources, interventions to change professional behaviour should be evidence-based, selected on the basis of their known effectiveness and efficiency, and should be directed towards important clinical conditions.
While rising prevalence and changing patterns of service delivery diabetes mellitus increasingly contributes to the primary care workload [ 6 ] and there is evidence of fragmented and variable provision of care. We aimed to find out whether we could operationalise audit and feedback from existing review data. The UK NHS has produced a framework and set of measurable criteria by which to judge the quality of care for patients with diabetes mellitus.
Some of these targets have been incorporated into the revised contract for UK primary care doctors GPs reflecting disease monitoring e. HbA1c measurement or secondary prevention e. We informed the study with two definitions of audit and feedback Table 2. The systematic review [ 5 ] offers a narrower definition than the National Institute for Clinical Excellence, Principles for Best Practice in Clinical Audit [ 4 ] which offers a broader definition and stresses the importance of integrating audit within an overall quality improvement framework.
The latter sets out practical considerations for five stages of the audit and feedback process: preparing for audit, selecting criteria, measuring performance, making improvements, and sustaining improvement Table 3.
Much emphasis is given to creating the right organisational structures and culture for success, as well as taking account of local knowledge, experience and skills. Both are relevant to quality improvement at an organisational as well as individual level. However, neither describes in detail the manner in which audit and feedback should be conducted.
Based upon discussions with those responsible for conducting audit and feedback at a local level as well as our own experiences of doing so, we identified several questions which would be relevant to any attempt to operationalise audit and feedback in a healthcare service setting.
Does audit and feedback work for this condition and setting, specifically improving the care of patients with a chronic disease — diabetes mellitus — in primary care?
Does it work equally across all dimensions of care — from simple recording of cardiovascular risk factors to more complex areas of care such as glycaemic control? The latter requires a greater number of actions to achieve which include measuring blood glucose levels, reviewing the patient, checking compliance with drug and dietary therapies and checking patients' understanding of the condition.
How should it be prepared? Should data be comparative and if so, what should the comparator group be? Should data be anonymised?
How intensive should feedback be? Intuitively, providing more and personalised feedback on a recurrent and regular basis should have a greater impact on practice than a one-off report of say PCT-level aggregated data. However, it is uncertain whether the extra time and costs of ongoing data collection and preparing more frequent feedback would be matched by additional benefits.
How should it be delivered — by post or by a messenger in person? And if by a messenger who should this be? Professionals might be more convinced by a message delivered by a colleague with a recognised interest in diabetes care rather than a non-clinical facilitator.
What activities, if any, should accompany feedback? The likely costs and possible benefits of say educational meetings or outreach visits need to be weighed up against providing feedback via paper or computerised formats alone. What should be done about the poorest performers detected by the audit? Targeting such practices may help close the gap between the poorest and best performers. Alternatively, spreading effort to improve quality more equally amongst all practices may improve average performance for the whole PCT.
We identified a systematic review of audit and feedback that identified and appraised 85 randomised trial. The review conclusions were:. The review identified only five direct head-to-head comparisons of different methods of providing feedback Table 4. One comparison suggested that feedback by a peer was more effective than that by a neutral observer [ 10 ]; another that feedback from a peer physician was no more effective than that from a nurse.
None of these studies reported an economic evaluation. The review also evaluated 14 direct comparisons of audit and feedback alone compared to audit and feedback combined with other interventions multifaceted interventions.
There was no evidence that multifaceted interventions worked better than audit and feedback alone. A multivariate analysis explored potential causes of heterogeneity in the results study quality, whether audit and feedback was combined with other interventions, intensity of feedback, complexity of the targeted behaviour, and level of baseline compliance.
Only low baseline compliance was associated with greater effect sizes for multifaceted interventions. There was no evidence of larger effects with increasing intensity of feedback. Fifteen studies relate to chronic disease management hypertension, diabetes, cholesterol control, depression, asthma and end-stage renal failure.
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