All you need is a map: Finding your way to audit quality improvement

In a briefing paper presented at a June meeting of its Standing Advisory Group, the U.S. Public Company Accounting Oversight Board (PCAOB) set out its initiatives to improve audit quality.

In a briefing paper presented at a June meeting of its Standing Advisory Group, the U.S. Public Company Accounting Oversight Board (PCAOB) set out its initiatives to improve audit quality. These initiatives were discussed in the context of continuous audit quality improvement and a “process map” setting out the key elements including: audit process/system of control, events, root cause analysis, remediation and monitoring.

The PCAOB process map may provide a useful framework for firms to consider their own approaches for monitoring and enhancing audit quality.Process Map

The process starts and ends with a firm’s audit process and quality control system.

Quality events (both positive and negative) that occur as a firm conducts audits need to be examined through root cause analysis (RCA). RCA is designed to identify the causes contributing to the events to understand how to prevent future negative events and promote future positive events. During remediation, the firm may undertake actions to fix problems and reinforce good quality practices. Monitoring is essential to validate the effectiveness of the actions taken with a view to adjusting the audit process and system of quality control.

A key driver of audit quality improvement is having an RCA approach to identify the multiple contributing factors that may cause a particular event. Remedial actions undertaken without fully understanding the causes which contributed to a problem are less likely to be effective in preventing similar problems occurring in the future. For this reason, the PCAOB is pursuing an initiative to understand and evaluate how firms are conducting RCA.

The results of this initiative are being integrated with other PCAOB initiatives to develop audit quality indicators and to improve firm quality control standards. The PCAOB believes RCA may assist in identifying audit quality measures or indicators at the engagement and firm levels that can in turn be used to monitor the effectiveness of firm quality control processes and to provide information about issues affecting audit quality.

These are important initiatives. If they are successful, they could assist audit firms develop strong processes for continuous audit quality improvement. At the moment, however, there does not appear to be one generally accepted approach to conducting RCA that can be used for all types and sizes of audit engagement and audit firm. Developing such an approach holds the promise that firms can stay on the right path to continuously improving audit quality in a consistent, cost-effective manner.

Keep the conversation going…. has your firm been successful in conducting robust RCA? What are the key steps for RCA to be done effectively?

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


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