High quality reporting supports global financial stability. This is the premise put forward by the International Federation of Accountants which published a framework for audit quality approved by the IAASB in 2013. In relation to this, KPMG together with Economia, the official journal for the Institute of Chartered Accountants in England and Wales (ICAEW), hosted a series of roundtables with industry stakeholders around the world to discuss the value of audit in providing assurance for the capital markets.
Measuring audit quality emerged as one of the key topics however across the globe, there seems to be little consensus about how to measure the quality of an audit. It is not a simple matter. The process of delivering an audit requires a significant amount of professional judgement which applies, inter alia, to the audit strategy employed and how auditors arrive at conclusions. The IAASB has offered some guidance with the publishing of its audit quality framework in December 2013.
The document, “A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality,” aims to encourage auditors and other stakeholders to challenge themselves to do more to increase audit quality in their own environment, and facilitate greater dialogue between key stakeholders on the topic.
In the framework, the IAASB recommends taking a holistic approach, describing the different input, process, and output factors that are relevant to audit quality at the engagement, firm and national levels. It recognises that various stakeholders have a role to play in ensuring audit quality.
KPMG takes a similar approach. The firms believes that audit quality is not solely reliant on the partner in charge of the audit. It is about the entire audit process. From the CEO to the head of audit to the head of risk to every single partner, to the audit partner and the trainees who are conducting the audit. Its audit quality framework takes into account multiple factors including recruitment, development, assignment of appropriately qualified personnel; commitment to technical excellence and quality service delivery; clear standards and robust audit tools as well as commitment to continuous improvement. For the firm this is an iterative process, one component influences the next.
The strength of a firm’s approach to audit will have a direct impact on the quality of audits it delivers however the question arose about whether there is a difference between audit quality and the quality of an audit? In attempting to answer these questions, it is important to define who the role-players are and what a quality audit involves.
It is widely accepted that delivering a good quality audit is not solely the responsibility of the auditor. The audit committee, management, internal audit and the regulators play a crucial role in improving audit quality. It takes all of those stakeholders working to together to ensure that audit quality is achieved.
The regulator’s role in measuring the quality of an audit based on a review of an individual audit but most often the regulator’s role is to monitor the performance of firms across the industry. If the regulator, during a routine inspection, finds flaws in the firm’s findings or processes, the result may be a hefty fine for the firm and disbarment for the auditors involved. Institutes like SAICA also play an important role in audit quality. They help provide support and guidance to auditors. In instances where complex new requirements are published, institutes provide insights about how to apply them.
An institute is a brotherhood of chartered accountants, not just auditors, who come together to ensure that the profession adheres to the highest standards, to ensure that the brand of the CA in SA is protected. Auditing in South Africa is rated number one globally. But the challenge is to maintain that leadership position.
The audit committee has an extremely important role to play because they attest to the veracity of the financial statements and that they fairly state the financial position of the organisation. However KPMG believes that the audit committees can and should say more. They should play the role of shareholder activists.
An important point to make is that auditors cannot say anything more than what has been stated in the financial statements of an organisation and then only to confirm whether they are fairly stated. This is the only information given to shareholders, other issues discovered are shared with the management team and audit committee but not necessarily with the shareholder. With advent of the extended audit report, these messages can now be heard by other stakeholders.
This in turn will ensure that these shareholders are able to make informed decisions about the future sustainability of these organisations thereby contributing to the stability of global financial systems.