Audit Firm: Audit Quality Indicators
The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation in USA established by Congress to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. The Sarbanes-Oxley Act of 2002, which created the PCAOB, required that auditors of U.S. public companies be subject to external and independent oversight.
The PCAOB has recently issued a concept release on Audit Quality Indicators (AQI). It has sought the public comment on the content and possible uses of a group of potential "audit quality indicators." The indicators are a potential portfolio of quantitative measures that may provide new insights about how to evaluate the quality of audits and how high quality audits are achieved.
The 28 potential Audit Quality Indicators are:
AUDIT PROFESSIONALS
Availability
Competence
Focus
1. Staffing Leverage 2.Partner Workload 3.Manager and Staff Workload 4.Technical Accounting and Auditing Resources 5.Persons with Specialized Skill and Knowledge
6.Experience of Audit Personnel 7.Industry Expertise of Audit Personnel 8.Turnoverof Audit Personnel 9.Amount of Audit Work Centralized at Service Centers10.Training Hours per Audit Professional
11.Audit Hours and Risk Areas
12.Allocation of Audit Hours to Phases of the Audit
AUDIT PROCESS
Tone at the Top and Leadership
Incentives
Independence
Infrastructure
Monitoring and Remediation
13.Results of Independent Survey of Firm Personnel
14.Quality Ratings and Compensation
15.Audit Fees, Effort, and Client Risk
16.Compliance with Independence Requirement
17.Investment in Infrastructure Supporting Quality Auditing
18.Audit Firms' Internal Quality Review Results
19.PCAOB Inspection Results 20.Technical Competency Testing
AUDIT RESULTS
Financial Statements
Internal Control
Going Concern
Communication between Auditors and Audit Committee
Enforcement and Litigation
21. Frequency and Impact of Financial Statement Restatements for Errors 22.Fraud and other Financial Reporting Misconduct 23.Inferring Audit Quality from Measures of Financial Reporting Quality
24.Timely Reporting of Internal Control Weaknesses
25.Timely Reporting
of Going Concern Issues
26.Results of Independent Surveys of Audit Committee Members
27. Trends in PCAOB and SEC Enforcement Proceedings
28.Trends in Private Litigation
Additional Thoughts
Quality control for audit is very important as only with an effective Quality control mechanism, the public interest can be served through independence, integrity, ethics, objectivity and quality performance. The aforementioned quality indicators can prove to be a useful benchmark for auditors to gauge their performance.
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