Ways to enhance the audit quality

The Chartered Accountants, today, are trying their best to go beyond every aspect to stand up to the expectations of their client and/or beyond and they are trying to implement all the ways to enhance the audit quality. Out of so many desires that any customer holds on to, there are the following two needs that the company/client wants to get done by its Chartered Accountant at any and every cost:

The actual representation of the company’s finances, i.e., the one that doesn’t have any error. Secondly, its accountant to make sure that detected errors in the audit are met, addressed, and communicated properly.

Most errors in audit are recognized while:

Understanding business owners approach towards accounting and bookkeeping, tone at the top. Evaluating and acknowledging the risks of material misstatement. Auditing and understanding the internal accounting process. Reviewing Audit accounting estimates which include fair value measurements. To overcome such errors, the following aspects are essential to consider:

INPUTS

These are the attributes of the firm’s auditor, such as the auditor’s skills and experience, the integrity of the audit team, the effectiveness of audit tools used, and the required technical support.

OUTPUTS

These have a strong impact in determining the Audit quality. If the report is passing on through the Audit output (without errors), it depicts a Positive influence of accounting Quality. Likewise, this positive influence effectively communicates on the qualitative aspects of financial reporting of the client/firm and performance of in the Internal control.

CONTEXT FACTORS

1. Law & regulation: it creates a structure for successful monitoring of Audits as it builds up a strong system for monitoring the work of Auditors and that there is a viable discourse among the auditor and its regulators.

2. Quality of applicable financial reporting framework: incorrect application of a financial reporting framework that does not ensure strength and transparency may affect the audit quality adversely.

IAASB, an independent standards body that issues international standards on Auditing, quality control guidelines, and other services to support the international auditing of financial statements (according to Wikipedia) has set a framework of objectives for Audit Quality.

The main objectives of this framework are:

Raising awareness of key elements of Audit quality. Encouraging key stakeholders to explore ways to improve Audit quality. Facilitating greater dialog between key stakeholders on the topic.

“I am not willing to compromise on quality, and I believe that ‘just good enough’ is not good enough.”

Marie-Laure Delarue EY Global Assurance Vice Chair

Wondering about High-quality audits and how to maintain them? Here are some key points necessary to understand the same.

High-Quality Audit-

A high-quality Audit is one that is systematic and helps achieve risk-based evaluation of the accounts. It includes a review of key accounting estimates and a review of software applications that are strong enough to affect the reported outputs.

Heading towards the most essential, yet critical section of this process, let us understand how one can improve its Audit Quality?

Helen Munter, director of PCAOB’s Division of Registration and Inspection (USA) suggested numerous ways, which the auditor can adapt and improve the audit quality. Helen suggests that the auditor should:

1. Choose their clients carefully- “A bad decision in this area can have horrible consequences down the road” (she said). The auditor must research and know what is the requirement of the client/firm he/she is supposed to maintain audit for.

2. Manage personnel effectively- The firm needs to ensure that the staff assigned with the responsibility of audit is well qualified, experienced, provided with enough training, and has got enough time to perform the tasks efficiently.

3. Develop a consultative culture- The time is changing. When every other industry is adapting to new and alternate ways for the better functioning of its tasks, the Chartered accountants/ Auditors are also adapting to new reformed ways. These alternate methods involve adequate and appropriate consultation services for its employees and provide the latter with expert advice and suggestions when needed.

4. Review and supervise thoroughly– Based on the reviews of engagement party and engagement quality reviewer, there were conclusions found in some areas by the PCAOB; the probable reason of which was believed to be lack of time, too much reliance on the discussions with engagement, and/or least explanatory summary reviews. Helen said there is something wrong with these reviews.

5. Take next steps in monitoring- Helen Munter reviews by saying “Firms may need to be more innovative in their root-cause analysis, and remedial actions may need to be more focused on the long-term fixes to elements within the system of quality control as compared to individual engagement issues.” Besides this, audit quality and trust can be maintained effectively by:

Regular up-gradation of audit elements- The audit quality gets to improve as the company starts upgrading itself with new and latest reforms in the industry. Providing the auditors, access to the latest technology and new/ upgraded software increases their chances of providing more precise and error-free financial reports.

Providing regular feedback and genuine appreciation- By providing the auditor with an adequate amount of time and proper feedback for the task performed, rewarding them with appreciation, communication (reports and suggestions) with utmost transparency, can help boost up the morale of the auditor as well as improve his/her performance. Such appreciations and feedback help encourage the auditor to work more, and that too with increased efficiency and greater productivity.

By staying cautious and informative- If audit firms/ auditor get itself adapted to the policies and practices for looking after the pros and cons of each software and/or the methodology with which they serve their clients can help a lot in improvising the quality of audit. If the auditor stays cautious enough to recognize and work upon the red flags and get to manage manipulative consent and behaviour, he/she can contribute towards bringing up and highlighting the upgraded audit.

Effective and encouraging mentors- If the auditor is well equipped with sources and has got effective moderators/ mentors who can help evaluate costs and benefits associated with the firm/client’s expenses, huge positive results can thus be expected in the final reports. Communication- Communication is the key for any kind of development in every department. With proper knowledge of each other and how a certain task can be accomplished effectively, the colleagues must have great communications among themselves and have least or no gaps for the same.

By acknowledging the findings- By staying honest, genuine, and acknowledging the final output as the findings of asset/liability value as well as by recognizing the revenue, one can always get to enhance the quality of its audit. By addressing and accepting what was concluded in the reports, one can always get to know how they can further amplify the finance management and provide the company/firm/client with more benefits in the domain of finances and management.

Why is maintaining Audit Quality a necessity?

To ensure the importance of a confident and informed market to the investors and/or company. To make the client believe in the assurance of the error free finance reports. To help detect losses, wastage, especially the ones that occur due to inadequacy of internal checks or internal control measures. To safeguard the financial interests of persons not associated with the management of an entity. To set liabilities for taxes, negotiations, loans, and determining purchase considerations of a business. Hence, improving and maintaining the audit quality is no cause of big stress if the auditors are provided with appropriate conditions, skills, environment, and resources to perform their tasks effectively and successfully. Supportive and cooperative team members always prove to be a boon for the employer as well as employee, no matter if it is some huge business hub (like conglomerates) or small (or new) business houses whose major goal is to provide affirming services to its clients. Also, the audit quality gets enhanced when the auditors get proper supervision and feedback.