Audit quality

Achieving a high standard of audit quality builds trust and confidence in the audit profession

In BrIef

  • There is no set definition of a quality audit, and many factors influence audit quality.
  • As a result, judging audit quality can be challenging and subjective.
  • But there are steps we can all take to create an environment that supports high-quality auditing.

Audit quality

While auditing standards are the foundation of audit quality, other key areas where we can make a difference were identified by the International Auditing and Assurance Standards Board (IAASB) in its Framework for Audit Quality:

Auditors and firms

A high-quality audit is more likely to be carried out when auditors:

  • display appropriate values, ethics and attitudes
  • are knowledgeable, skilled and experienced
  • have enough time to perform the audit.

These criteria also apply to the firm as a whole and the quality of all its audits. Similarly, the values, ethics and attitudes of individual auditors are influenced by the culture of their firm. The structure of audit firms has been part of the conversation on how audit quality should continue to evolve. 

Are multidisciplinary firms good for audit quality?

New report examines the relationship between multidisciplinary firms and audit quality.

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The audit process

To achieve a high-quality audit, auditors need to follow rigorous audit processes and quality-control procedures. The IAASB standards are revised regularly to ensure that these processes remain appropriate as business practices and technologies change. The IAASB is currently revising the quality management standards that firms apply as part of this process.

IAASB QM project

The ISQM 1 Task Force will present a full draft of proposed ISQM 1 for IAASB approval via videoconference in September 2020.

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Reporting

In a high-quality audit, stakeholders receive useful reports and information on time. The quality of the outputs from the auditor, the firm and the entity being audited may reflect the audit quality and also directly affect it.

Communication

When all stakeholders in an audit – including the auditors, the firm, the entity and regulators – interact effectively, they can help improve audit quality.

The context of the audit

A number of external factors can impact the quality of financial reporting, and therefore audit quality. They include:

  • business practices
  • laws and regulations
  • information systems
  • corporate governance
  • the financial reporting timetable
  • cultural factors

Supportive environment

High-quality audits are best achieved when auditors are supported by everyone in the financial reporting supply chain. According to the International Federation of Accountants (IFAC), the supply chain comprises: “the people and processes involved in the preparation, approval, audit, analysis and use of financial reports” and includes preparers, directors, those charged with governance, regulators, standard setters and professional bodies.

IAASB framework

A framework for audit quality: Key elements that create an environment for audit quality

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Evolution of audit quality

The audit profession will continue to evolve as businesses and financial markets evolve. How all parties in the financial reporting supply chain work to maintain audit quality will always be part of the conversations around this evolution. In Australia, there is an ongoing parliamentary inquiry into audit regulation which touches on a range of matters that can impact audit quality. The final report is expected at the end of 2020 but the interim report, and our submissions are valuable to read.

Australian Audit Inquiry Interim Report

The recommendations outlined in the interim report of the parliamentary inquiry into audit regulation are in step with community and stakeholder expectations.

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