Only as strong as the weakest link: New framework aims at continual audit quality improvement

While the primary responsibility for performing quality audits rests with auditors, audit quality is often best achieved in an environment where there is support from other participants in the financial reporting supply chain.

While the primary responsibility for performing quality audits rests with auditors, audit quality is often best achieved in an environment where there is support from other participants in the financial reporting supply chain. That is the basis for an audit quality framework in a Consultation Paper recently issued for comment by the International Auditing and Assurance Standards Board (IAASB).

The IAASB aims to contribute to improving audit quality by:

  • raising awareness about key elements of audit quality
  • encouraging stakeholders to explore ways to improve audit quality
  • facilitating greater dialogue between stakeholders about the topic

The framework presents a simple model to illustrate the key elements of audit quality and describes a number of factors (inputs, outputs, interactions, and contextual factors) that contribute to the likelihood of quality audits being consistently performed.

In developing the framework, the IAASB has identified a number of areas for consideration by both auditors and other participants in the financial reporting supply chain that may benefit audit quality on a global basis. All the links in the chain need to be of high-quality and closely connected to deliver high-quality financial reporting. While each separate link in the supply chain plays an important role in supporting high-quality financial reporting, the nature of the connections, or interactions, between the links can have a particular impact on audit quality. The framework examines how these interactions can enhance audit quality.

In a foreword to the Consultation Paper, the IAASB chair, Arnold Schilder, says “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.” One can take from this that the IAASB would like to see individual jurisdictions adapt the IAASB’s framework for use in their own environments.

I think that this is where the biggest opportunity lies – producing practical application materials based on the framework that key stakeholders in an individual jurisdiction can use. Audit firms, for example, might use the framework to develop benchmarks in relation to the attributes that foster audit quality (even if these are just used internally to measure a firm’s progress over a period of time). Or, guidance might be developed using the framework so that an audit committee can ask the right questions of their auditors in assessing their commitment to audit quality. Similarly, management might use the framework to assess whether it is doing all it can to promote a quality audit of an entity’s financial statements.

The IAASB identified ten areas for further consideration to benefit audit quality on a global basis and seeks views on whether international collaboration in these areas might be fruitful. The IAASB is hoping its consultation process will uncover means to maximize the value of the framework in practice and opportunities for further developments. It is seeking comments by May 15, 2013.

Keep the conversation going…let me know what you think of the IAASB’s framework and what opportunities you can see for using it in a Canadian context.

Post a comment below; or 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.

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