Audit quality: why standard-setting matters
28 October 2020: Audit quality is not the sole responsibility of auditors. Regulators, inspectors and standard-setters all have a role to play, and auditing standards and the standard-setting process needs to be fit for purpose, writes ICAEW Chief Executive Michael Izza.
Audit standards matter because, critically, audit inspectors evaluate auditor performance against them.Without auditing standards, there is no baseline for determining which audits were done well, and which were not. This means that standards and the standard-setting process have a direct effect on audit quality. If standard-setters ignore important issues or approach them the wrong way, audit quality will suffer.
Auditing standards have grown longer and more complicated over the years. Some of that growth is a direct reflection of the growth and complexity in business itself. But we need to ask whether current standards must be as long and complex as they are now for smaller audits, and at the other end of the scale whether we need even longer standards for the largest and most complex audits. I do not believe that a ‘one-size-fits-all’ approach serves auditors – and ultimately audit quality – well.
To address this, we need to look at the standard-setting process. Would it be better, for example, if the standard-setting process was more efficient? Detailed drafting is still performed by the full IAASB Board; might it be better if a highly-technically qualified secretariat were tasked with writing standards and in more accessible language?
With all this in mind, we recently published a new thought leadership essay on the role of standard-setting in audit quality, examining these issues and questions in more detail. The paper also specifically focuses on the ability of the IAASB, reflects on standard-setting in the UK, and concludes with a series of recommendations. We expect to publish another essay in this series during the next few months, dealing more directly with how to raise the bar on audit quality.
ICAEW is already on record as strongly supporting the development of a separate standard for the audit of less complex entities - which will include a lot of smaller audits. We will continue to engage with the IAASB to ensure that the project proposal for this new standard, which will be presented to its December meeting, is moved steadily forward.
Click on the title to read the full essay: Audit quality: the role of standard-setting.