Achieving a high standard of audit quality is essential to building trust and confidence in the audit profession. However, there is no set definition of audit quality standards, and many factors influence audit quality. This can make the assessment of audits challenging and subjective. In an environment where external auditors are facing increased scrutiny and attention, it’s important for external auditors to consider and manage any risks to audit quality.
In their document ‘A framework for audit quality,’ the IAASB identifies the key factors responsible for a quality audit:
- Exhibit appropriate values, ethics, and attitudes;
- Be sufficiently knowledgeable, skilled, and experienced and have sufficient time allocated to perform the audit work;
- Apply a rigorous audit process and quality control procedures that comply with law, regulation, and applicable standards;
- Provide useful and timely reports; and
- Interact appropriately with relevant stakeholders.
How do you deliver these outcomes?
A few years ago, ASIC released an information sheet about improving audit quality. The sheet emphasised that “the quality of financial reports is key to confident and informed markets and investors. The purpose of the independent audit is to provide confidence in the quality of financial reports. Improving audit quality and the consistency of audit execution is essential to maintaining confidence in the independent assurance they provide.”
Clearly, audit quality is only as strong as the people who perform audit work every day. Increasingly, auditing is regarded as a specialist profession. Whilst there are clear independent guidelines and support for internal auditors through IAA Australia, the profession is still waiting for the same level of consideration and support for external auditors. In the meantime, we need to draw on industry experience and feedback from regulators. There are some key considerations for all audit firms.
These principles also align closely with internal audit best practices, particularly in areas such as risk assessment, documentation and continuous improvement.
Tip No. 1: Investin people to maintain auditquality
The COVID-19 pandemic has brought unprecedented challenges to company auditors and the clients and public that they serve. Whilst this is likely to ease in the next couple of years, there’s still a critical need for audit firms to attract the best people and keep the talent they have by investing in learning and growth. Licensing requirements should be reviewed regularly to ensure that audit firms are keeping up with technology, systems, and legislative requirements.
Tip No. 2: Strengthenquality management systems
Specialist audit firms need to focus less on a generalised checklist approach to audit quality and adopt a process whereby they periodically assess the actual challenges in their practice and implement measures to address those challenges. A new quality management standard is required. The AICPA has recently identified three proposed standards that address these concerns:
- Statement on Quality Management Standards (SQMS)
- Proposed SQMS Engagement Quality Reviews
- Proposed Statement on Auditing Standards (SAS)
Tip No. 3: Maintainindependence to protect audit integrity
Whilst many people associated with the profession see independence as an obstacle, it should be viewed as essential to the value of the audit process. Audit committees (or, in their absence, finance and risk committees) play an essential role in managing the relationship between auditor and client. They do this in a way that respects independence and ensures that internal systems reflect any risks to the quality of financial reporting.
Tip No. 4: Communicate audit value clearly to stakeholders
External auditors sometimes struggle to effectively communicate the value of the service they provide. When audit is perceived as a compliance-focused exercise with no real discussion around value of financial reporting to stakeholders, it’s more likely that cost will come into play. Keys to address this include transparency in communicating the scope of work, a strong focus on communication with all stakeholders and providing specific advice on ways that the collection and analysis of financial data can be improved.
In practice, applying practical external audit tips such as clear communication, defined scope and timely reporting can significantly improve audit outcomes.
Tip No. 5: Align audit processes with audit quality standards
Audit firms should ensure that their methodologies and workflows are consistently aligned with recognised audit quality standards. This involves applying structured audit procedures, maintaining detailed documentation and implementing robust review and supervision processes across engagements.
A consistent approach helps reduce variability in audit execution and supports more reliable outcomes. It also ensures that audits meet regulatory expectations and can withstand external scrutiny.
By embedding quality standards into daily practice, firms can improve both efficiency and confidence in their audit work.
Tip No. 6: Apply internal audit best practicesto strengthen controls
Adopting internal audit best practices can significantly enhance the effectiveness of audit engagements. This includes taking a proactive approach to risk assessment, maintaining clear and well-documented audit trails and continuously reviewing internal processes for improvement.
Internal audit principles such as ongoing monitoring, data-driven analysis and control testing can also be applied to external audit work.
By integrating these practices, auditors can identify potential issues earlier, provide more meaningful insights and support stronger governance outcomes for clients.
Tip No. 7: Plan audits early and prepare clients effectively
Effective audit outcomes begin with proper planning and client preparation. Engaging with clients early in the process allows auditors to identify key risks, set expectations and ensure that required documentation is available in advance.
When clients are well-prepared, audits can be conducted more efficiently, reducing delays and minimising disruption to business operations.
Tip No. 8: Establish clear audit scope and timelines
Clearly defining the scope of work and establishing realistic timelines are critical to managing audit engagements effectively. A well-defined scope ensures that both auditors and clients understand the objectives, deliverables and boundaries of the audit.
Setting clear timelines also helps maintain accountability and keeps the audit process on track. Regular progress updates and milestone reviews can further support smooth execution. This structured approach reduces uncertainty, improves coordination and helps deliver audits within expected timeframes.
Tip No. 9: Prepare thoroughly for first-time audit engagements
First-time audits often present unique challenges, particularly where systems, documentation or processes are not yet aligned with audit requirements. Taking the time to prepare thoroughly can significantly reduce issues during the audit process. This includes ensuring that financial records are complete, controls are documented and key stakeholders understand their responsibilities.
Early preparation also allows auditors to identify potential gaps and address them before fieldwork begins.
Tip No. 10: Continuously review and improve audit processes
Maintaining audit quality requires a commitment to continuous improvement. Audit firms should regularly assess their processes, identify areas for enhancement and adapt to changes in regulations, technology and client expectations.
This may involve reviewing past engagements, incorporating feedback and updating methodologies to reflect current best practices. Taking a proactive approach helps ensure that audit processes remain effective, consistent and aligned with evolving industry standards.
As part of this approach, firms should also consider how internal and external audit functions can work together to strengthen overall audit outcomes, improve risk coverage and support better decision-making across the organisation.
Are multidisciplinary firms good for audit quality?
The extent to which auditors provide non-audit services is front and centre of the heated international debate on audit. There continues to be concern that independence may be compromised in spite of strict rules that prohibit or restrict firms from providing such services to audit clients.
CAANZ recently published a report, ‘Audit quality in a multidisciplinary firm – What the evidence shows’. The report suggested that ‘a multidisciplinary approach, drawing on deep methodology and frameworks for assurance, combined with specialist and subject matter expertise, is well positioned to meet demands’ that require a diverse skill base.
However, the issue of whether audit firms should provide non-audit services to their existing audit clients is more nuanced. In the past couple of years, there’s been significant commercial and regulatory pressure for multidisciplinary consulting firms to divest themselves of audit services.
As auditing becomes more specialised, there’s no doubt that audit-only service providers will continue to develop as stand-alone businesses. The team at National Audits Group has a great deal of experience working with the audit, finance, and risk management committees of their clients to ensure the best possible outcomes for all stakeholders.
For further information, contact our team at Ph 1300 734 707.