IAASB takes a holistic approach in its new Framework for Audit Quality

18 February 2014

The IAASB released 'A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality'. The aim is to raise awareness of the key elements of audit quality, and encourage stakeholders to challenge themselves to do more to increase audit quality in their particular environments.

“Audit quality is, and will continue to be, an area of principal attention by the IAASB and others. This new Framework contributes to further progress on the topic by making clear that, while responsibility for performing quality audits of financial statements rests with auditors, audit quality is best achieved in an environment where there is support from and appropriate interactions among participants in the financial reporting supply chain", said Prof Arnold Schilder, IAASB chairman.

The Framework describes in a holistic manner the different input, process, and output factors relevant to audit quality at the engagement, firm, and national levels. It also demonstrates the importance of appropriate interactions among stakeholders, and how they may facilitate improvement to audit quality, as well as perceptions of audit quality. Further, the Framework demonstrates the importance of various contextual factors, such as laws and regulations, the litigation environment, corporate governance, and the financial reporting framework—collectively, factors that have the potential to impact the nature and quality of financial reporting and, directly or indirectly, audit quality.

“Our discussions on the Framework have been informed by many sources, including the regulatory community, international ethics and accounting education standard setters, the IAASB’s Consultative Advisory Group, and the public", added James Gunn, IAASB technical director. “Our hope is to see continued dialogue on the topic, and that active use of the Framework by various stakeholders will result in positive actions in the public interest to achieve a continual improvement to audit quality.”

Financial information should be relevant, timely and reliable to meet the needs of users. National laws and regulations, as well as an entity’s stakeholders, often require an external audit of some elements of the financial information to give users confidence that the information can be trusted. For an external audit to fulfil its objective the users of audited financial statements must have confidence that the auditor has worked to a suitable standard and that “a quality audit” has been performed.

The term “audit quality” is frequently used in debates among stakeholders, in communications of regulators, standard setters, audit firms and others, and in research and policy setting. Audit quality is a complex subject and there is no definition or analysis of it that has achieved universal recognition.

The IAASB believes that such a Framework is in the public interest as it will:

• Encourage national audit firms, international networks of audit firms, and professional accountancy organisations to reflect on how to improve audit quality and better communicate information about audit quality;
• Raise the level of awareness and understanding among stakeholders of the important elements of audit quality;
• Enable stakeholders to recognise those factors that may deserve priority attention to enhance audit quality. For example, the Framework could be used to inform those charged with governance about audit quality and encourage them to consider their roles in enhancing it;
• Assist standard-setting, both internationally and at a national level. For example, the IAASB will use the Framework when it revises International Standard on Quality Control (ISQC) 11 and the ISAs. It may also assist the IESBA and IAESB in considering improvements to their authoritative pronouncements;
• Facilitate dialogue and closer working relationships between the IAASB and key stakeholders as well as among these key stakeholders themselves;
• Stimulate academic research on the topic; and
• Assist students of auditing to more fully understand the fundamentals of the profession they are aspiring to join.

Press release

A Framework for Audit Quality

© IFAC