News highlights for March 2013

Without concrete, objective ways to measure audit quality, it is difficult to assess whether efforts to improve audits have been successful.

The International Auditing and Assurance Standards Board (IAASB), one of many organizations attempting to tackle this challenge, issued a consultation paper, A Framework for Audit Quality, that it hopes will generate discussion and actions that will improve audits.

Objectives of the framework include:

• Raising awareness of the key elements of audit quality.
• Encouraging exploration of ways to improve audit quality.
• Facilitating more dialogue on the topic.

The goal of the project is to create a framework that will describe the input and output factors that contribute to audit quality at the engagement, audit firm, and national levels.

As proposed, the framework describes inputs, outputs, interactions, and contextual factors that the IAASB believes can increase the likelihood of quality audits being consistently performed. A quality audit is likely to be achieved, according to the consultation paper, when the auditor’s opinion on the financial statements was based on sufficient, appropriate evidence obtained by an engagement team that:

• Exhibited appropriate values, ethics, and attitudes.
• Was knowledgeable and experienced and had enough time to perform the audit.
• Applied a rigorous audit process and quality-control procedures.
• Provided valuable and timely reports.
• Interacted appropriately with a variety of stakeholders.

The consultation paper is available at tinyurl.com/bhncm3j. The IAASB, which requests comments on the framework proposal by May 15, is not the only organization attempting to define audit quality. The Department of the Treasury’s Advisory Committee on the Auditing Profession has recommended that the PCAOB study the feasibility of developing key indicators of audit quality and effectiveness. One of the PCAOB’s priorities this year is to identify audit quality indicators, and the board has a long-term goal of tracking and reporting on those measures for domestic global network firms.

“Due to the multidimensional nature of audit quality, a ‘balanced scorecard’ approach with various indicators and measures likely will be necessary,” PCAOB member Jeanette Franzel said in a speech last week.

The Center for Audit Quality (CAQ), which is affiliated with the AICPA, also has a project under way to look at the definition, indicators, and measurements of audit quality. The first phase of the multiyear effort is expected to finish at the end of this year. The CAQ expects the first phase to seek to identify a handful of audit quality indicators that could be monitored and reported on a professionwide level.

The CAQ plans to seek perspectives of many stakeholders and hopes to coordinate with the IAASB and the PCAOB on their projects.