As U.S. audit regulators try to pin down exactly how to define audit quality—and therefore manage and regulate it—international experts have published their own framework outlining what they believe to be the key elements of audit quality.
The International Auditing and Assurance Standards Board has released its “Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality," describing the input, process, and output factors it believes are relevant to audit quality at all levels of the auditing profession. The IAASB hopes the framework will raise awareness of audit quality that will encourage key stakeholders to raise the bar on their own performance and initiate dialogue on the issue.
The framework concludes a quality audit is likely to result when the engagement team exhibits appropriate values, ethics, and attitudes, and when the team was sufficiently knowledgeable, skilled, and experienced and had sufficient time to perform the audit. Other critical factors include the application of a rigorous audit process and quality control procedures, useful and timely reports, and appropriate interaction with stakeholders.
The Public Company Accounting Oversight Board is engaged in an effort to identify “audit quality indicators,” or those factors that lead to good audits. In a December speech at an accounting conference, PCAOB's Greg Jonas, director of the office of research and analysis, said the effort began with an inventory of 80 possible indicators, which the staff has narrowed to about 30 key indicators of audit quality. "We considered indicators cited in academic research, previous efforts related to audit quality, and discussions with the board's advisory groups, firms, other regulators, audit committees and academics,” he said. To ensure a robust array, we created an audit quality framework, a COSO-type model for an audit practice. For framework elements without a candidate measure, the staff brainstormed about indicators that could inform that element, which surfaced more candidates.The staff is now narrowing the list to the most promising indicators for discussion with the board."
Some of those indicators are likely not controversial, like partner-to-staff leverage, staff utilization, industry expertise, PCAOB inspection findings, and the level of input of those charged with managing or supervising the audit, Jonas said. Other indicators may be more controversial, like the percentage or nature of work that is outsourced, anonymous survey results to assess tone at the top, a survey of audit committee members about the quality of communication, and the absence of a going concern opinion before a significant event.
The PCAOB intends to summarize its findings in a future concept release that would ask for input on the project, the nature of the audit quality indicators that the board has identified, and possible uses of audit quality indicators, Jonas said.