This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice (http://www2.deloitte.com/ca/en/legal/cookies.html) for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

Audit Quality Indicators (AQIs) [Research]

Next steps:

CPAB will be looking for Canadian audit committees interested in learning more about AQIs to participate in a pilot project with their auditor in 2016. The results of this pilot will be shared in 2017.

Last up­dated:

February 2017

Overview

The aim of audit quality indicators (AQIs) project is to enhance the discussion of audit quality among stakeholders and provide a way for audit firms to show their commitment to, and compete on, audit quality.

An AQI is a portfolio of quantitative measures about public company auditing, intended for those concerned with the financial reporting and auditing process, such as audit committees, audit firms and potentially the investing public.

Audit quality can be difficult to define, measure and quantify.  In recent years, there have been a number of audit quality projects undertaken around the world which are attempting to develop metrics that can be used to assess audit quality and to also determine whether it has improved or not. Such projects include those by the Public Company Accounting Oversight Board (PCAOB) and the Center for Audit Quality (CAQ) in the United States and the Financial Reporting Council (FRC) in the United Kingdom.

Internationally, in February 2014, the International Auditing and Assurance Standards Board (IAASB) with the support of the Canadian Auditing and Assurance Standards Board (AASB) has issued its new Framework for Audit Quality, entitled A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality. In Canada, the Canadian Public Accountability Board (CPAB) has issued a series of Exchange bulletins during 2015 and 2014 related to the issue of audit quality, including one relating to audit quality indicators.

These initiatives will both assist the dialogue about audit quality matters and support key activities to enhance audit quality.  For example, they will assist audit committees in their oversight and evaluation of the auditor, including during their annual evaluation of the performance of the auditor.  They will also provide a way for audit firms to show their commitment to audit quality and will facilitate a greater emphasis for competition among firms on the basis of audit quality, rather than on the basis of price.

 

Re­cent ac­tiv­i­ties

February 2017

On February 23, 2017, the Canadian Public Accountability Board (CPAB) released an Interim Report which outlines its current findings regarding Audit Quality Indicators (AQIs) based on observations of participants in CPAB’s 2016 AQI Pilot Project. The Interim Report summarizes the CPAB’s key learnings to date. Their observations suggest that AQIs could have significant potential to positively impact audit quality. They encourage audit committees, management and audit firms to continue to explore how AQIs can be integrated into their audit processes.

October 2016

On October 28, 2016, the PCAOB posted a speech, PCAOB and Audit Committees – An Important Partnership, given by PCAOB Board Member Jay D. Hanson, at the annual meeting of the Association of Audit Committee Members, Inc. In his speech, Mr. Hanson stated that they continue to digest the feedback they have received and to discuss with firms their experiences with the quality indicators that they have begun to identify and track. While the Board has yet to make a formal determination about next steps, they are not likely to impose in the near future any new requirements to mandate audit quality indicators. Rather, they will continue to gather data about promising indicators, encourage academic study in this area, and urge firms to monitor and report publicly on some of the most informative measures. Mr. Hanson believes it would also be useful to gather more input on whether to establish standardized definitions for certain indicators, even if their use is voluntary, in order to allow for comparability between firms. They continue to be interested in the use by audit committees of indicators that audit committees believe are useful in their evaluation of their auditor.

June 2016

In June 2016, the PCAOB provided an update on their project on audit quality indicators. They continue to digest the feedback they received and to discuss with firms their experiences with the quality indicators that they have begun to identify and track. While the Board has yet to make a formal determination about next steps, it is not likely to impose any requirements or new standards in this area in the near future. The Board will continue to gather data about promising indicators, encourage academic study in this area, and urge firms to monitor and report publicly on some of the most informative measures.

March 2016

On March 31, 2016, the CPAB released a publication where it discusses the two initiatives increasing transparency into the audit process - Audit Quality Indicators and Transparency Reporting. During 2016, CPAB is reaching out to audit committee members to participate in a pilot project to obtain Canadian feedback on the usefulness and practical implications of using audit quality indicators. The results of this pilot will be shared in 2017.

June 2015

On June 30, 2015, the PCAOB issued a Concept Release seeking comments on the content and possible uses of audit quality indicators (AQIs), measures that may provide new insights into audit quality. The concept release seeks comments on 28 potential AQIs, covering three broad categories: (i) Audit Professionals — measures dealing with the availability, competence, and focus of those performing the audit; (ii) Audit Process — measures concerning an audit firm's tone at the top and leadership, incentives, independence, investment in infrastructure needed to support quality auditing, and monitoring and remediation activities; and (iii) Audit Results — measures relating to financial statements (such as the number and impact of restatements, and measures of financial reporting quality), internal control over financial reporting, going concern reporting, communications between auditors and audit committees, and enforcement and litigation.  In addition to seeking comments on the content of AQIs, the PCAOB is asking for views on how AQIs may best be used to promote audit quality.  The comment period ends on September 29, 2015.  See the Press Release and related Fact Sheet.

May 2015

On May 29, 2015 the Financial Reporting Council (FRC) in the United Kingdom issued a Practice Aid to assist audit committees in evaluating audit quality in their assessment of the effectiveness of the external audit process. The FRC was responding to requests for guidance in this area, in light of the UK Corporate Governance Code provision, introduced in 2012, that the audit committee report should include an explanation as to how it has assessed the effectiveness of the external audit process. The aid focusses on assessing audit quality and has been developed based on feedback from audit committee members, investors, financial management and auditors. As well as setting a framework for the committee’s evaluation, the aid  sets out practical suggestions on how audit committees might tailor their evaluation in the context of the company’s business model and strategy; the business risks it faces; and the perception of the reasonable expectations of the company’s investors and other stakeholders.  See the Press Release.

February 2015

On February 20, 2015, the Canadian Public Accountability Board (CPAB) issued a Summary of its November 2014 Audit Quality Symposium, which brought together directors, business leaders, policy makers, audit firm leaders, regulators and academics from Canada and around the world. In CPAB’s view, four fundamental areas for action came from the discussion at this third symposium: (i) the comprehensive review and audit quality indicators provide an opportunity to support audit committees in their oversight of the auditor and to enhance the focus on audit quality; (ii) there is an opportunity to improve audit quality through increasing the transparency of issues included in the auditor’s report; (iii) there are opportunities for the value and relevance of the audit to be enhanced; and (iv) there are changes coming to the audit industry that need to be actively managed to ensure its long term sustainability.

November 2014

On November 21, 2014, the Canadian Public Accountability Board (CPAB) issued an Exchange bulletin entitled, Audit Quality Indicators: In Search of the Right Measures. The Exchange bulletin discusses various international efforts to develop a portfolio of quantitative measures which would provide insight into audit quality that an audit firm could share publicly or with audit committees and which would facilitate dialogue on the drivers of audit quality. The CPAB believes that developing a portfolio of measures that an audit firm can share publicly and/or with audit committees is a good step toward increasing the dialogue on audit quality and can support audit committees in their oversight of the auditor. Additional information on audit quality indicators can also improve the balance between quality and price when audit committees select their auditor.

June 2014

On June 25, 2014, the Canadian Public Accountability Board (CPAB) issued an Exchange bulletin entitled, Building Sustainable Audit Quality. The Exchange bulletin notes that the CPAB believes that sustainable performance cannot be achieved without a culture that has a foundation built on audit quality. Firm culture should ensure that leadership, partners and professionals make the decisions that maintain an appropriate balance between commercialism (managing the economic business of the firm) and professionalism (sustainable high quality audits). The CPAB believes that audit firms need to focus on four key areas to improve audit quality in a sustainable manner, namely (i) build the right teams; (ii) provide the right support; (iii) conduct in-process reviews; and (iv) assign accountability for audit quality.  The Exchange bulletin provides details of these recommendations.

April 2014

On April 24, 2014, the Center for Audit Quality (CAQ) in the United States released the CAQ Approach to Audit Quality Indicators, which represents a two-year effort with its member firms to develop perspectives regarding which indicators may be most relevant and how and to whom they should be communicated. The paper sets forth in detail the CAQ approach to communicate a set of potential Audit Quality Indicators (AQIs), which will be pilot tested by CAQ member firms with select audit committees. The CAQ Approach to Audit Quality Indicators is based on a two-fold focus: (i) communications of AQIs that are directed at audit committees; and (ii) communication of AQIs that are focused largely on engagement-specific indicators.

February 2014

On February 18, 2014, the International Auditing and Assurance Standards Board (IAASB) issued its new Framework for Audit Quality, entitled A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality. Through this Framework, the IAASB aims to raise awareness of the key elements of audit quality, encourage key stakeholders to challenge themselves to do more to increase audit quality in their particular environments, and facilitate greater dialogue between key stakeholders on the topic.  See Press Release and related At-a-Glance document.

 

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.