Audit regulator CPAB is making progress on its AQI pilot project

While results from CPAB’s interim report showcase the potential usefulness of audit quality indicators, it will be even more critical to understand how these should be integrated into regular processes.

The Canadian Public Accountability Board (CPAB) issued an interim report on a pilot project to explore quantitative measures about the audit process (referred to as audit quality indicators, or AQI) with large audit committees. The learnings provide insights into the potential usefulness of AQI going forward.

CPAB worked with seven audit committee chairs, the external audit firm and management. The groups considered AQI from a number of different angles, for example to:

  • provide general oversight of the audit
  • evaluate the auditor in terms of audit quality and client service
  • monitor and manage the added value provided by the auditor

What the CPAB interim report says

The interim report summarizes the preliminary observations, benefits, challenges, and key insights from the project so far. While there is still more work to be done, for example, because the audit committees have not yet considered year-end reporting on AQIs, there are already some important takeaways of note:

  • management’s involvement is important in shaping which AQIs are selected
  • because the groups were encouraged to consider which AQIs would be most valuable in their specific circumstances, there was significant variety in the types of AQIs selected
  • AQIs can provide benefits that enhance audit quality by clarifying expectations among stakeholders and better engaging the whole audit committee in oversight over the audit process
  • several challenges were encountered, including:
    • the development of evaluation criteria (such as whether to compare to budget or some other benchmark)
    • the difficulty in quantifying certain key factors in audit quality
    • how to interpret the results
  • management indicators (such as the achievement of timing of agreed upon deliverables from management to the auditor) were relevant to the audit committee in highlighting how management can contribute to audit quality
  • although several measures were used by different groups, they did not necessarily define, evaluate and report AQIs in the same way
  • perceived usefulness of AQIs was mixed, although a few tended to score higher marks, such as audit hours by risk or audit hours by phase of the audit

Thoughts on the project so far

Overall, this pilot project is helpful in generating interest and understanding about how AQIs can be used to evaluate audit quality. This is because the project is essentially standalone from the audit committees’ normal work.

It is unlikely, in my view, that an audit committee would look at AQIs in isolation from these processes, so what will be important as this project progresses is to understand how an audit committee would integrate AQIs into its regular processes.

This is why CPA Canada is undertaking a project to integrate guidance on AQIs into existing tools for audit committees around the annual assessment of the auditor and comprehensive reviews of the audit firm. If it is able to link AQI approaches to the tools, I believe that this will serve to help audit committees better focus on what AQIs support these activities.

Stay tuned as this project evolves.

Keep the conversation going….

Do you think AQIs could be a useful tool in evaluating audit quality? Do you think CPA Canada’s project will be of benefit to audit committees? The CPAB project focused on experienced audit committee chairs. Do you think AQIs could be used more broadly?

Post a comment below; or email me directly.

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

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada