Walk a mile in my shoes: Understanding an audit committee’s perspective on audit quality

As I discuss issues with colleagues about enhancing audit quality, I always find that I need to understand where the other party is coming from, what is their perspective?

As I discuss issues with colleagues about enhancing audit quality, I always find that I need to understand where the other party is coming from, what is their perspective? This is because, whether you are the general public, an auditor, a standard setter, an audit inspector, management, or an audit committee chair, your involvement in and access to information about the audit can differ significantly, and this affects your view of what is audit quality. But does this matter?

Well, I think it does. After all, if you want to enhance audit quality, don’t you need to know what it is first? As I see it, audit quality is somewhat in the eye of the beholder. For example, a standard setter sees the auditing standards it develops as providing a foundation for quality audits. If audit quality was only about compliance with auditing standards there would only be one important perspective – regulatory compliance.

But that is not what I hear when I talk to audit committee members. Virtually all agree compliance with professional standards is the most important factor because of the assurance the auditor provides as to the fairness of the presentation of the financial statements. . However, many also believe that the quality of an audit is more than this. Some refer to the fact that an independent auditor directly involved in assessing the financial reporting process contributes to a disciplined environment for producing reliable financial information. Some refer to auditors that provide insights about the entity’s financial reporting practices, including the operation of internal controls. Still others believe that the auditor’s views about the competencies and capabilities of the financial reporting team are invaluable to the audit committee in overseeing the financial reporting process.

So what does audit quality look like from the audit committee perspective? The International Auditing and Assurance Standards Board (IAASB) framework for audit quality provides some clues. The framework states that those charged with governance are likely to evaluate the value and timing of both the written reports from the auditor and the less formal communications when considering overall audit quality. Further, in relation to the quality and usefulness of communications from the auditor, the framework states that those charged with governance may particularly value certain types of auditor communications, such as information that enables them to effectively fulfill their governance responsibilities. So the IAASB seems to be creating a link between the value of communications from the auditor and an audit committee’s view of audit quality. It suggests that if an auditor provides more valuable communications to the audit committee, the audit committee will consider the audit to be of higher audit quality? If this is the case, it would seem important for an auditor to better understand what an audit committee’s expectations are in this area and to try and meet those expectations.

Delving deeper into the question of the audit committee’s perspective on audit quality could, in my view, help audit committees better evaluate their audits and assess the performance of the auditor.

Keep the conversation going…. do your audit committees have a clear perspective about audit quality? What do they think it entails? Are they looking for more valuable communications from you?

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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