Enhancing audit quality: 2015 roundup

The audit world has seen a number of positive developments this year in support of enhancing audit quality, but it’s ultimately up to us to determine what works best for our Canadian environment.

As 2015 draws to a close, it’s interesting to reflect on what has been top of mind for policymakers on enhancing audit quality this year. Here’s my assessment of what emerged and why:

AUDITOR REPORTING

Canada is coming to grips with potential changes to the auditor’s report. While discussions continue on the benefits and implementation challenges of these changes, experience in other jurisdictions seems to support the need for the auditor to provide greater transparency about the audit.

OVERSIGHT OF THE EXTERNAL AUDITOR

Canada’s initiative to improve the consistency and effectiveness of audit committee oversight of the external auditor is gaining traction. Audit committees have been performing more robust annual and periodic comprehensive reviews of the auditor, which have been enhancing their assessments of the quality of audits. A key feature of these reviews is understanding audit inspection findings relevant to the audit of the entity. Audit committees are now in a better position to explore with their auditors the implications of these findings on the quality of their audits.

AUDIT COMMITTEE REPORTING

As the audit committee’s approach to the oversight of the external auditor continues to improve, the quality of audit committee reporting is undergoing enhancements as well. Such reporting may not only benefit investors by providing more transparency around audit committee activities, but some also believe it complements changes to auditor reporting by aligning the interests of auditors and audit committees around disclosures about the audit.

ENHANCING THE VALUE OF THE AUDIT

There are a number of developments in this area. For example, technological advances provide opportunities for auditors to make audits more effective and efficient. In addition, a number of commentators are looking at different ways that the auditor can support the role of the audit committee. Can an auditor provide more useful insights to the audit committee, reflecting the auditor’s exposure to other entities in the same industry, knowledge of accounting and regulatory developments, etc.? Others are exploring whether auditors could be more involved in providing assurance to audit committees on information beyond the financial statements, such as Management’s Discussion and Analysis, including key performance indicators.

AUDIT QUALITY INDICATORS

A new initiative gaining momentum is identifying whether there are quantitative measures that may provide indications of audit quality. Such measures, if they are reflective of the quality of an audit, could assist audit committees and others compare and contrast auditor performance over time and with other audits/audit firms.

WORKING TOGETHER

While these topics may individually have their merits and implications, what I believe will be the biggest challenge going forward is determining how best to integrate their features into a framework that best results in enhancing audit quality and addresses perceptions that auditing has become a bureaucratic, burdensome compliance activity.

For this reason, I wonder whether Canada needs an initiative similar to the Enhancing Audit Quality initiative of a few years ago that involved a broad range of key stakeholders to evaluate each of these developments and determine the best fit for Canada.

KEEP THE CONVERSATION GOING

What are your thoughts as to what should be the primary focus in 2016 to enhance the quality of the audit? Do you believe that Canada needs to explore the topics mentioned in this blog in a more holistic manner? How should this be done?

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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