January 12, 2016

New Report Highlights Efforts on Audit Quality Indicators and Explores the Path Ahead

Publication details findings from global dialogue and outlines next steps

Washington, DC – The Center for Audit Quality (CAQ) today issued a new report that provides insights from a global series of roundtable discussions with audit committee members and other stakeholders on a potential set of audit quality indicators. This outreach, together with the results from pilot testing of the CAQ’s Approach to Audit Quality Indicators, suggests a path forward on efforts to identify the most effective way to assess audit quality.

“Further dialogue and continued collaboration among all stakeholders is needed as we develop AQIs and best practices for their use,” added Michele J. Hooper, President and CEO of The Directors’ Council and CAQ Governing Board lead on the AQI Initiative. 

“Our AQI pilot testing and roundtable discussions have provided enormously helpful inputs to the profession's work in this area, and we are grateful to all of the participants,” said CAQ Executive Director Cindy Fornelli. “While validating many aspects of our approach, these efforts also have showed us where more work needs to be done.”

Key findings from the roundtables—held in New York, Chicago, London, and Singapore during the summer of 2015—include the following:

  • Participants expressed desire for information that can assist audit committees in their assessment of the more qualitative aspects of the audit, such as the engagement team having the right mindset to bring forth professional skepticism and auditor judgment. 
  • Audit committee members recognized that AQIs can help them oversee the quality of their external audit, even if external audit is just one aspect of quality financial reporting.
  • Most participants endorsed a flexible approach that allows an audit committee, working with the external auditor, to tailor or customize the selection and portfolio of AQIs that best suit its specific information needs.
  • While supporting the concept of AQIs, some roundtable participants said they already have the tools necessary for them to gauge the quality of their audit.
  • Audit committee members agreed that AQIs alone, without context, cannot adequately communicate factors relevant to any particular audit engagement or audit firm. 
  • There was agreement that the process of identifying and evaluating AQIs needs to be audit committee-driven and iterative, and will require continuous assessment and refinement in order to meet the changing information needs of audit committees.
  • Audit committee members expressed strong concerns that public disclosure of engagement-level AQIs could lead to unintended consequences. A strong consensus emerged that any disclosures of engagement-level AQI information should be voluntary. 
    “We have learned a great deal on this journey, but much more remains to be done to strengthen our ability to determine and assess audit quality,” said Stephen Chipman, CEO (retired) Grant Thornton and former CAQ Governing Board member and AQI Initiative co-lead. “The CAQ looks forward to continuing its work towards this vital goal.”

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The full report can be found here.

The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. For more information, visit www.thecaq.org.