IAASB, PCAOB, CAQ seek ways to measure audit quality
Without concrete, objective ways to measure audit quality, it is difficult to assess whether efforts to improve audits have been successful.
The International Auditing and Assurance Standards Board (IAASB), one of many organisations attempting to tackle this challenge, has issued a consultation paper, A Framework for Audit Quality, that it hopes will generate discussion and actions that will improve audits.
Objectives of the framework include:
- Raising awareness of the key elements of audit quality.
- Encouraging exploration of ways to improve audit quality.
- Facilitating more dialogue on the topic.
The goal of the project is to create a framework that will describe the input and output factors that contribute to audit quality at the engagement, audit firm and national levels.
As proposed, the framework describes inputs, outputs, interactions and contextual factors that the IAASB believes can increase the likelihood of quality audits being consistently performed. A quality audit is likely to be achieved, according to the consultation paper, when the auditor’s opinion on the financial statements was based on sufficient, appropriate evidence obtained by an engagement team that:
- Exhibited appropriate values, ethics and attitudes.
- Was knowledgeable and experienced and had enough time to perform the audit.
- Applied a rigorous audit process and quality-control procedures.
- Provided valuable and timely reports.
- Interacted appropriately with a variety of stakeholders.
“Many factors contribute to increasing the likelihood of quality audits being consistently performed,” IAASB Chairman Arnold Schilder said in the foreword to the consultation paper. “The IAASB believes there is value in describing these factors and thereby encouraging audit firms and other stakeholders to challenge themselves about whether there is more that they can do to increase audit quality in their particular environments.”
The IAASB, which requests comments on the framework proposal by May 15th, is not the only organisation attempting to define audit quality. The US Treasury’s Advisory Committee on the Auditing Profession has recommended that the US Public Company Accounting Oversight Board (PCAOB) study the feasibility of developing key indicators of audit quality and effectiveness. One of the PCAOB’s priorities this year is to identify audit quality indicators, and the board has a long-term goal of tracking and reporting on those measures for domestic global network firms.
“Due to the multidimensional nature of audit quality, a ‘balanced scorecard’ approach with various indicators and measures likely will be necessary,” PCAOB member Jeanette Franzel said in a speech last week.
The Center for Audit Quality (CAQ), which is affiliated with the American Institute of CPAs, also has a project under way to look at the definition, indicators and measurements of audit quality. The first phase of the multiyear effort is expected to finish at the end of this year. The CAQ expects the first phase to seek to identify a handful of audit quality indicators that could be monitored and reported on a profession-wide level.
The CAQ plans to seek perspectives of many stakeholders and hopes to coordinate with the IAASB and the PCAOB on their projects.
Franzel said the PCAOB’s project will be a significant development in advancing the quality and reliability of audits. Schilder hopes the IAASB’s framework project will have similar results.
“Recent financial conditions have highlighted the crucial importance of credible, high-quality financial reporting in all sectors of the world economy, including the capital markets, small companies, not-for-profit and government organizations,” Schilder said in the foreword to the paper. “They have also reinforced the need, in the public interest, for continual improvement to audit quality.”
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine senior editor.