22 April 2013

IFAC: Recent Developments in Auditing - The Importance of Audit Quality and Auditor Reporting

In the IAASB’s view, a quality audit is likely to be achieved when the auditor’s opinion on the financial statements can be relied upon as it was based on sufficient appropriate audit evidence obtained by an engagement team that:

• exhibited appropriate values,ethics and attitudes;
• was sufficiently knowledgeable and experienced and had sufficient time allocated to perform the audit work;
• applied a rigorous audit process and quality control procedures;
• provided valuable and timely reports; and
• interacted appropriately with a variety of different stakeholders.

Many factors contribute to increasing the likelihood of quality audits being consistently performed. The IAASB believes there is value in describing these factors and thereby encouraging audit firms and other stakeholders to challenge themselves about whether there is more that they can do to increase audit quality in their particular environments.

For this reason, the IAASB has developed, and at present is seeking public comment on, a Framework for Audit Quality (the Framework). The Framework describes the input and output factors that contribute to audit quality at the engagement, audit firm and national levels. The Framework also demonstrates the importance of appropriate interactions among stakeholders and the importance of various contextual factors.

The importance of various ‘Interactions’ was discussed at a recent Forum in Dubai hosted by Hawkamah and IMF on 18-19March 2013. As a start, it goes without saying that auditors are responsible for the quality of individual audits. But the Framework demonstrates the importance of appropriate interactions between stakeholders as links in the financial reporting supply chain. Various participants in this chain can influence the behaviour and views of others and thereby contribute to improvements in audit quality.

Mr Schilder described interactions between: i) auditors and banking regulators; ii) auditors and those charged with governance (TCWG); and iii) auditors and users of financial statements and related audit reports.

Interactions between auditors and banking regulators

The audit of banks has often an enhanced scope with specific reporting responsibilities to banking regulators. Auditors may have specific knowledge of issues at banks that relate to the fulfilment of license requirements, adherence to capital requirements and/or material changes in risk or going concern position. Supervisors may have information that is relevant to the auditor. As a recent Consultative Document from the Basel Committee on Banking Supervision, ‘External Audits of Banks’, notes (p.28): “The external auditor can provide the supervisor with valuable insight into various aspects of a bank’s operations and management’s attitude to the application of key accounting policies, judgments and models adopted. Conversely, the external auditor may obtain helpful insights from information originating from the supervisor where the supervisor provides an independent assessment in areas significant to the external audit and may focus attention on specific areas of supervisory concerns.”

Full article

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