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Independent audit has been part of the financial reporting supply chain for a considerable time. This has resulted in more consideration being given to the quality of an audit and what audit quality means, how it could be defined and how it could be measured. Indeed, recently, more and more emphasis has been placed on measuring audit quality by regulators, oversight bodies, professional bodies and audit firms. Even though there is currently no common approach to measuring audit quality, a number of initiatives or proposals have recently been issued by nine bodies world-wide which set out Audit Quality Indicators (AQIs) that might be used to measure audit quality.
AQIs are meant to provide a basis for comparison across different audits and audit firms. Another important potential benefit of AQIs is enhanced by the transparency of information available for discussion with those charged with governance and audit committees, for instance when selecting an audit firm. In these ways, AQIs could help audit firms to demonstrate their commitment to audit quality and foster competition. For AQIs to serve these purposes, the information acquired from AQIs needs to be comparable and to be interpreted in the correct context.
The information in this overview has been collected through research conducted by the FEE.
The findings can be summarized as follows:
• Audit quality indicators initiatives differ quite significantly throughout different countries world-wide. Some issuing bodies have suggested a more flexible, principles-based approachwhile others have published a mandatory, rules-based listof AQIs. Furthermore, some initiatives provide a set of AQIs up to 40, while others suggest a set of less than ten AQIs on which to report.
• Often, information on firm level AQIs is suggested to be made public meaning that all the key stakeholders are able to assess them. However, in other cases the information is considered to be sensitive as it is based on indicators at the specific audit engagement level, and is therefore meant to be privatefor audit committee use only. Not all the initiatives differentiate between the engagement and firm level.
• The issuers of the AQIs initiatives also suggest different approaches when it comes to the formulation of the indicators. While some are clearly of a quantitative natureand others are qualitative, there is also a mixof both types of information.
• The most popular audit quality indicator is the quantum of hours of training undertaken per person as it is included in eight of the initiatives. AQIs such as internal engagement quality reviews, number of audit staff per audit partner, years of experience, and external inspections are found in six initiatives. However, this does not mean that these indicators are ‘better’ than those appearing less frequently.
• At the time of writing, a few initiatives are still in their consultation phase. The PCAOB has extended the consultation period on their initiative until the end of November 2015 and the Nederlandse Beroepsorganisatie van Accountants (NBA) is expected to issue a revised version of their AQIs in 2016. Furthermore, the Center for Audit Quality (CAQ) is also currently pilot-testing its AQIs.