What Is Audit Quality

ACC 625

April 4, 2016

What is “Audit Quality?”

Introduction

Public accounting firms are placed with confidence by the public, because we believe that they will conduct audits according to the applicable professional standards in order to issue an appropriate opinion. However, it is not always the case where the quality of a company’s audit is up to par, which are due to a variety of reasons. Thus, the focus on audit quality has become increasingly important as firms take steps to ensure that their employees are performing based on set standards.

What is Audit Quality?

Audit Quality is commonly understood through the use of audit quality indicators. According to the Center for Audit Quality, “audit quality indicators could provide additional perspective on the key elements of a firm’s system of quality control as it applies to a particular audit, and could be useful to further an audit committees understanding of matters that may contribute to the performance of a quality audit.^[1] 

The Center for Audit Quality identifies four key indicators. The first indicator is the firm’s leadership and tone at the top. This indicator evaluates the company’s leadership in recognizing audit quality as important, and setting it at a high standard. The second key indicator is the engagement team knowledge, experience and workload. It is important to evaluate the competence of the audit team because an audit can only be effective if the team is properly trained and has the appropriate experiences. The third indicator identified is monitoring. This indicator assists in assessing the firm’s quality control and makes any necessary adjustments. Lastly, auditor reporting is the final audit quality indicator. This indicator measures the firm’s ability to deliver reports that are “reliable, useful, and timely; auditor communications are effective.”^[2]

The PCAOB has a similar approach when evaluating the quality of an audit. Similar to the Center for Audit Quality, they have “identified a portfolio of quantitative measures of public company auditing whose consistent use may enhance dialogue about and understanding of audits and ways to evaluate their quality; and to explore how and by whom the portfolio of indicators can best be used.”^[3] 

The PCAOB breaks down audit quality into three components, audit professionals, audit process, and audit results. Under these three components, there are a total of 28 key indicators that assist the audit firm in evaluating the quality of its audits. For example, under the component “audit professionals”, there are three sub categories, availability, competence and focus. Under these subcategories are 10 specific indicators, such as partner workload, and persons with specialized skill and knowledge. This enables the audit firm to get a better understanding of the specific factors that will enable a successful audit.