Enhance audit quality, or eat more vegetables – which resolution will prevail in 2013?

We all make resolutions at this time of year. Mine is to find out how the Canadian audit profession can work together, collaboratively, on meaningful change to audit quality.

We all make resolutions at this time of year. Mine is to find out how the Canadian audit profession can work together, collaboratively, on meaningful change to audit quality. But do we have the willpower to make it happen?

In December, the International Forum of Independent Audit Regulators (IFIAR) issued a summary report resulting from a global survey of 2012 audit inspection findings by IFIAR members located around the world. The executive summary acknowledges that the survey results need to be interpreted with caution given various factors, including the wide diversity of audit inspection practices globally. The findings did not arise on every audit within an audit firm or even in every firm. When they did arise, very rarely were the financial statements misstated. Nevertheless, the report provides some useful indicators of audit execution issues identified in audits of listed public companies, and the steps inspectors and audit firms are taking to improve audit quality. The following are some of the findings in the IFIAR report:

  • Inappropriate reliance on management representations;
  • Failure to document audit evidence supporting significant judgments and conclusions reached;
  • Failure to appropriately identify and respond to risks of material misstatement, whether due to fraud or error;
  • Inadequate supervision and review to critically evaluate the quality of audit evidence obtained;
  • Inadequate engagement partner involvement, engagement quality control review and monitoring of quality control policies and procedures.

The IFIAR report also identifies different actions that firms are taking internationally to improve audit execution, such as:

  • Communicating inspection findings to firm leadership, technical departments, partners and staff on audit engagements that were inspected;
  • Performing root cause analysis to gain a deeper understanding of the causes of audit deficiencies;
  • Re-evaluating whether to continue audit engagements, for example those requiring specific industry specialization not readily available within the audit firm;
  • Revising audit methodologies, guidance, tools, training programs, etc.;
  • Enhancing internal quality control review and mandatory consultation programs, and performance evaluation and compensation practices;
  • Increasing involvement by the audit partner, specialists and experienced staff in areas of focus and by the audit partner in all stages of the audit.

The thing that strikes me about the IFIAR report is that many of the findings (perhaps in slightly different form and for different reasons) also appear in national and provincial audit inspection reports, and some of them seem to recur year after year. This suggests to me that there are common audit execution issues that can affect many audits, regardless of the type of entity or size of audit firm.

But are there common solutions? There might be benefits to working collaboratively, across the profession, to improve audit execution rather than independently, as seems to be the case now. Collaborative efforts might provide powerful solutions that enhance audit quality broadly rather than on an audit-by-audit, firm-by-firm basis. In 2013, it is my goal to see if there are indeed common solutions. Much more fun than eating more broccoli.

Keep the conversation going…what do you see as the barriers that prevent auditors from working together to enhance audit quality, and how can these be overcome?

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.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

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