The Center for Audit Quality issued a new report Tuesday describing some of the feedback it has received on the audit quality indicators it has been pilot testing with auditors and audit committees.
The report includes some of the insights the CAQ learned from a global series of roundtable discussions it organized bringing together audit committee members and other stakeholders to talk about a potential set of audit quality indicators, or AQIs. This outreach, together with the results from pilot testing of the CAQ’s Approach to Audit Quality Indicators, suggests a path forward on efforts to identify the most effective way to assess audit quality.
The Public Company Accounting Oversight Board has been developing a separate set of audit quality indicators for an upcoming standard that presumably would be required of audit firms at some point when they are finalized. The CAQ's pilot test involves a voluntary set of indicators that audit firms and audit committees would use on a voluntary basis.
“Further dialogue and continued collaboration among all stakeholders is needed as we develop AQIs and best practices for their use,” said Michele J. Hooper, president and CEO of the Directors’ Council and CAQ Governing Board lead on the AQI Initiative.
“Our AQI pilot testing and roundtable discussions have provided enormously helpful inputs to the profession's work in this area, and we are grateful to all of the participants,” said CAQ executive director Cindy Fornelli in a statement. “While validating many aspects of our approach, these efforts also have showed us where more work needs to be done.”
The roundtables occurred in New York, Chicago, London, and Singapore last summer. Participants talked about the desire for information that can help audit committees assess of the more qualitative aspects of the audit, such as the engagement team having the right mindset to bring forth professional skepticism and auditor judgment. Audit committee members said they recognized that audit quality indicators can help them oversee the quality of their external audit, even if external audit is just one aspect of quality financial reporting.
Most of the roundtable participants endorsed a flexible approach that allows an audit committee, working with the external auditor, to tailor or customize the selection and portfolio of AQIs that best suit its specific information needs. While supporting the concept of AQIs, some roundtable participants said they already have the tools necessary for them to gauge the quality of their audit. Audit committee members agreed that AQIs alone, without context, cannot adequately communicate factors relevant to any particular audit engagement or audit firm.
There was agreement that the process of identifying and evaluating AQIs needs to be audit committee-driven and iterative, and will require continuous assessment and refinement in order to meet the changing information needs of audit committees. Audit committee members expressed strong concerns that public disclosure of engagement-level AQIs could lead to unintended consequences. A strong consensus emerged that any disclosures of engagement-level AQI information should be voluntary.
“We have learned a great deal on this journey, but much more remains to be done to strengthen our ability to determine and assess audit quality,” said Stephen Chipman, CEO (retired) Grant Thornton and former CAQ Governing Board member and AQI Initiative co-lead. “The CAQ looks forward to continuing its work towards this vital goal.”