ENHANCING AUDIT QUALITY IN THE PUBLIC INTEREST
A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS
Overview
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2 ENHANCING AUDIT QUALITY IN THE PUBLIC INTEREST: A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS
Why is this consultation important to you?
Auditors play a key role in contributing to the credibility of the financial statements on which they are reporting. High-quality audits support financial stability. As the global auditing standard setter,1 we have a public interest responsibility to develop standards and guidance for auditors to facilitate high-quality audits being achieved which in turn builds public trust and confidence in financial statements and financial reporting more broadly.
Who should respond?
We want to hear from all of our stakeholders. In particular, this publication is targeted at:
Financial statement users.
Preparers.
Audit committees.
Organizations representing these groups.
What does our consultation address?
Our auditing and quality control standards need to stay relevant in the face of continually changing circumstances in diverse jurisdictions. We are focused on three priority topics professional skepticism, quality control, and group audits.
What do we want to hear from you and why are we reaching out now?
This Overview outlines the public interest issues we believe should be addressed as a matter of priority and provides high-level insight into the direction we could take. We want you to tell us:
Have we identified the right issues?
What do you think causes these issues?
What changes to our standards might be necessary?
What else might be needed to complement changes to our standards?
Our work is at an early stage. We want to make sure we understand your needs and expectations about where enhancements to audit quality are needed and your views about what direction our work should take. We want to hear about matters we should address in the public interest. We have learned that asking questions at an early stage helps us more effectively develop and revise our standards.
Specific questions are included on pages 30 and 31.
We are not the only organization that can influence audit quality. As the global auditing standard setter, we encourage cooperation and debate among regulators, policymakers, national auditing standard setters and other stakeholders. Therefore, we are also asking for your views about what others can do to improve audit quality.
1 The IAASB develops auditing and assurance standards and guidance by use for all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board (PIOB), which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance.
The objective of the IAASB is to serve the public interest by setting high-quality quality auditing, assurance, and other related standards and by facilitating the convergence of international and national auditing and assurance standards, thereby enhancing the quality and consistency of practice throughout the world and strengthened public confidence in the global auditing and assurance profession.
Copyright December 2015 by the International Federation of Accountants (IFAC).For copyright, trademark, and permissions information, please see page 32.
AN OVERVIEW OF THE IAASBS INVITATION TO COMMENT
ENHANCING AUDIT QUALITY IN THE PUBLIC INTEREST: A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS 3
How can you learn more?
Some readers may want more detail on areas described in this consultation. You can find more information in the Invitation to Comment, Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control and Group Audits.
The Invitation to Comment goes into more depth about:
How our standards currently address various matters.
Concerns we have noted about these matters.
Possible actions we may take in response, including highlighting specific areas in our standards that we might improve to enhance audit quality.
More specific questions we would like to have answered.
How will your feedback be considered and how can you send it to us?
We describe possible actions to enhance audit quality in this Overview and the Invitation to Comment specifically in relation to professional skepticism, quality control and group audits. This does not limit us to these actions if stakeholders believe others may be more effective to respond to the public interest issues. This consultation may also help us identify actions to address in the future.
You are welcome to respond to this Overview, the Invitation to Comment, or both. Both set out questions to answer. If you choose to answer the questions in the Invitation to Comment, you need not answer the questions in this Overview. All responses to both documents will be considered.
To send us your views in writing, please submit your comments online at this link no later than May 16, 2016. All responses will be published on our website.
We also plan to supplement our outreach program with additional events focused on this consultation. For more information on events, or to notify us of events your organization may be planning, visit www.iaasb.org/focus-audit-quality or contact us at [email protected].
What happens next?
Your input will help us decide on our next steps for example, by changing certain of our standards or by taking other actions. We intend to use your responses as the basis for moving forward as quickly as possible. We plan to decide on next steps later in 2016, including tabling project proposals for approval. Once we do so, we will start preparing exposure drafts of potential changes to selected standards with a focus on those relating to quality control and group audits. We will also determine how we should progress actions related to professional skepticism, including in conjunction with our planned standard-setting activities on quality control and group audits.
Key aspects of our expected timeline for the three projects (quality control, group audits and professional skepticism) are as follows:
JanMay 2016
Outreach
Close of Comment Period May 16
September 2016 IAASB and CAG
Meetings
Sept 20162017
Approval of project proposals
Decision on way forward for professional skepticism
Development of exposure drafts
MaySep 2016
Next Steps
Analysis of Comments
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4 ENHANCING AUDIT QUALITY IN THE PUBLIC INTEREST: A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS
What is driving our areas of focus? 5
What are the most relevant public interest issues and how can we take action? 7
Audit quality: What do we mean and how can it be enhanced? 8
How can we strengthen the application of professional skepticism in audits? 11
How can we strengthen our standards addressing quality control? 18
How can we strengthen our standards addressing group audits? 26
Questions 30
TABLE OF CONTENTS
Our Standards Frequently Mentioned in this Publication
International Standards on Auditing (ISA)
International Standard on Quality Control (ISQC 1), Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements
ISA 220, Quality Control for an Audit of Financial Statements
ISA 600, Special ConsiderationsAudits of Group Financial Statements (Including the Work of Component Auditors)
ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
ISA 200, Overall Objectives of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing
ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatements through Understanding the Entity and its Environment
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ENHANCING AUDIT QUALITY IN THE PUBLIC INTEREST: A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS 5
1 The ISAs and ISQC 1 are fundamental in supporting high-quality audits, which in turn builds public trust and confidence in financial statements. This will be achieved by consistent implementation of our standards around the world. We need to know if our public interest aims are being achieved.
2 Our efforts to clarify the ISAs and ISQC 1 represented a big step in our commitment to audit quality. The clarified ISAs and ISQC 1 became effective in 2009. Soon afterwards, we began our first post-implementation review (the ISA Implementation Monitoring Project), which was completed in July 2013.
3 We continue to work closely with our stakeholders to understand where we should focus our future efforts and why and now we seek your views in determining our way forward.
WHAT IS DRIVING OUR AREAS OF FOCUS?
The primary output of an audit is an auditors opinion that provides users with confidence as to the reliability of the audited financial statements. For the majority of users, the absence of a modified auditors opinion is an important signal about the reliability of the financial information. - Paragraph 20 of the IAASBs Framework for Audit Quality (2014)
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