Audit quality: In the eye of the beholder?

As proposals are developed to enhance the role of audit, the primary goal is to improve “audit quality.” But audit quality can mean different things to different stakeholders.

As proposals are developed to enhance the role of audit, the primary goal is to improve “audit quality.” But audit quality can mean different things to different stakeholders. So who decides if the final changes meet their objective?

Whenever changes are made, it is important to have a clear objective in mind. But if the end goal is fuzzy it becomes much harder to demonstrate that changes will meet their objective. And that’s the challenge facing policy makers, standard setters, regulators and others as they consider proposals to change the role of audit. There is no generally accepted definition of “audit quality.” So as proposals are debated by different groups we are seeing widely divergent views on the benefits each will deliver.

There are a number of reasons why it is so difficult to define audit quality.  But a key reason is that different stakeholders have different views as to what audit quality is and how it can be enhanced. For example:

  • Management might focus on such things as the efficiency of the audit process and the quality, timeliness and usefulness of communications from the audit team.
  • Audit committees might focus on the robustness of the audit, the independence of the auditor and whether communications between the auditor and the audit committee are effective.
  • Regulators might focus on evidence of compliance with auditing standards and the rigour demonstrated by the auditor in dealing with complex accounting issues.

What this means is that audit proposals might improve audit quality in some dimensions but have adverse effects on audit quality in others. Having a clear objective is important if the right policy decisions are to be made.  Otherwise deciding if quality has been enhanced will be a bit like choosing the winner in a beauty contest – the answer will be in the eye of the beholder.

The International Auditing and Assurance Standards Board (IAASB) recognized the complexities involved in making decisions about improving audit quality and is undertaking a project to develop an international audit quality framework. As a first step, the IAASB published Audit Quality: An IAASB Perspective last year. There is more to come.

Keep the conversation going…what are the biggest influences on audit quality from your perspective?  Email me directly .

Eric

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

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