- Audit quality is a complex concept
- Auditors invest huge effort into internal systems to manage the quality of their work
- Staff training and up-to-date experience is fervently maintained
A complex and skilled profession
Audit quality is a difficult concept to explain. An audit is an examination and an evaluation of data, to enable the auditor to form an opinion on the financial statements or other entity reporting. It relies on obtaining relevant, sufficient and reliable data. In addition, a quality audit requires judgement, professional scepticism, the ability to “read” people, gather suitable explanations, and the ability to collate vast swathes of information from innumerable sources. It is a complex and skilled profession requiring many years of training and ongoing development and learning. How does anyone know if the audit is undertaken with quality? Is it akin to knowing if a Rolex is the real thing, or not?
Audit quality has many components
The International Audit and Assurance Standards Board undertook a four year international consultation which received input from many bodies including CA ANZ, auditors, regulators, and other interested parties. This consultation identified several key elements that contribute to a quality audit including:
- input factors such as values, ethics and attitudes, knowledge, skills, and experience, and time allocated for audit performance
- output factors such as audit reports and other outputs that arise from the auditing process that are generally not visible to those outside the audited organization
- process factors such as the rigour of the quality control procedures
- the context in which an audit is performed, for example the laws and regulations, which may require specific reports that influence the skills utilized
- interactions within the financial reporting supply chain. For example discussions between the auditor and the audit committee of a listed company at the planning stage can add focus areas to an audit.
IAASB Discussion Paper
Audit QualityRead now
Transparency is in place
With these findings in mind, it raises the question about who can assess these elements . In the case of a large entity, it is the audit committees who can identify and assess these elements. In Australia and New Zealand, audit committees consist of a majority of non-executive directors who are not engaged in the management of the entity. They represent the interests of shareholders and have full and unfettered access to the external auditor. In the case of smaller entities, the board or others in governance roles fulfil this role.
The introduction of key audit matters this year means that every audit report of a listed entity in Australia and a FMC reporting entity considered to have a higher level of public accountability in New Zealand, includes a section that explains the key areas of focus for the auditor in that year, and summarises the auditor’s approach to the audit in those areas. This is a valuable source of information for understanding the audit’s focus and for helping to assess the quality of the approach.
In Australia audit firms undertaking more than 10 listed entity audits produce a Transparency Report each year. This report outlines the firm’s systems and processes to establish and maintain audit quality. These reports make for fascinating reading. The amount of training, supervision and monitoring of audit staff is quite remarkable, establishing the importance auditors place on having qualified staff using up to date experience and business acumen to undertake audit work.
The focus on the quality of staff was demonstrated recently through the #AuditorProud initiative. Quality audits require quality staff and taking pride in their work is important. On 28 September over 10,000 auditors took to social media around the world to explain why they were proud to be auditors and to expand on how audit adds value to society.
Demonstrating pride in the value of auditRead now
Assess audit quality on all the facts
Audit quality is not as simple as having the right documents on file. Recording the evidence contributing to the opinion is important. However, other factors feed into the quality of an audit. These factors should be in place whether it’s an audit of the financial statements of a large multinational or a small local society. And the value of this strong and dedicated approach is clear. Australia and New Zealand have strong financial markets, with a high level of transparency and accountability, and a committed audit profession. The evidence is there for all to see.
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