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CPA Canada study opens door on how management contributes to audit quality

What is management’s role in the audit process, and can managers do more to influence audit quality? An online survey posed to management generated some interesting insights and best practices.

A lot has been said about enhancing audit quality, whether it is driven by the actions that the auditor takes, or the level of involvement of the audit committee. But what about management? Does management influence audit quality?

A study conducted by CPA Canada in partnership with Financial Executives International (FEI) Canada sought to find out.

KEY FINDINGS

The study assessed management’s understanding of the importance of its role as a contributor to the quality of the audit. After all, the interaction of the auditor with the audit committee and management are critical to the financial reporting process as a whole.

The study identified three key areas of good practice that can strengthen the audit process:

  • Management’s processes with respect to the audit. The better that management establishes and executes its own internal processes for planning, managing and supporting the audit, the smoother the audit is likely to run.
  • Joint planning. Before the audit begins, there is an opportunity for management and the auditor to share information that will enhance understanding of the entity and its environment, and promote greater efficiencies in the audit process.
  • Positive working relationships. Establishing a transparent alliance with two-way communication may support an effective and efficient audit, benefitting both management and the auditor.

In summary, as management’s engagement in the audit process increases, so does the quality (as judged by management) of the audit.

AUDIT DATA ANALYTICS

One area of the study that I found particularly interesting is the evolving area of data analytics. The study explored whether data analytics might enhance audit quality from management’s perspective. It examined the role management can play in the auditor’s use of data analytics.

The study noted these approaches:

  • Provide the auditor with access to good quality complete data by including the IT department in internal planning discussions with the auditor; clarify responsibilities for preparing data for the auditors.
  • Discuss with the auditor how data analytics are being used in the audit to have a clear understanding of what information is required.
  • Discuss the results openly and honestly to enhance the quality of the audit evidence as well as provide insights into the business. Audit data analytics often reveal matters that are important to an entity’s operations.

CPA Canada has also developed some resources that might be useful to management.

CONCLUSIONS

I found this study to be very encouraging. While there needs to be healthy tension in the relationship between the auditor and management, the study suggests that management can be more involved in understanding and contributing to the audit process. Strong communication can lead to a quality and value-added audit.

KEEP THE CONVERSATION GOING

How important is it for management and the auditor to discuss their respective roles in enhancing audit quality? Share your successes and challenges in having these discussions. Post a comment below, or email me directly.

Disclaimer

Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.