What is audit quality?
The quality of evaluation refers to the factors that give the evaluator consistency.
In addition to the primary audit and management options, they can indeed change the financial situation and the reported results. This information is suitable for evaluation.
Why is the quality of the audit important?
The quality of financial reports is crucial for safe and informed markets and investors. The purpose of an independent audit is to ensure confidence in the financial statements. To maintain confidence in the independent assurance they provide, it is important to improve the quality and consistency of the audit. If a company goes bankrupt, but its financial statements do not adequately reflect its deteriorating financial condition and performance or unrestricted operations, it is worth asking questions about the role of board members and the company’s auditor. You can also ask questions about whether investment decisions are made on the basis of financial reports that do not reflect the actual financial condition and performance of the company.
Directors are responsible for the quality of the financial statements – which are supported by the quality of the audit – so it is in the best interests of directors and audit committees to support the audit process. This involves ensuring that time management provides high-quality financial information and that control has adequate resources. We strongly recommend that you do not select auditors based on cost and do not guarantee the quality of the audit. Auditors should have reasonable assurance that the financial statements are free from material misstatement, be sufficiently skeptical of accounting estimates and policies, and address any deficiencies observed to give investors and other users of the financial statements confidence in the quality of the information contained therein.
Demonstrating professional skepticism is an important part of conducting quality inspections. In the spirit of inquiry, the auditor should critically evaluate the reliability of the evidence obtained and the management’s assessments of accounting estimates and procedures.
What good looks like for audit firms
Key initiatives to improve audit quality
Audit firms should consider improving the quality of the audit:
If ASIC audits or internal quality audits conclude that insufficient relevant audit evidence has been obtained, firms should address the deficiencies by obtaining the evidence necessary to substantiate the opinion. Partners and companies should not delay a visit to the inspector to perform additional work. Taking the necessary steps to complete their audits for that reporting period will ensure that the audit report can be supported and that market information will be accurate in the event of inaccurate reporting. Some partners may resist accepting and resolving the results of quality checks and inspections. This may be due to reputational concerns, impact on performance and potential benefit assessment, liability or discipline, or additional audit costs. While it is important to have a good conversation between the partner and ASIC to make sure our results are relevant, it is in the interests of partners, companies, auditors, management, and accounting users to find and address them. Companies should have processes that require partners to take action. Insignificant cases where companies do not accept the results and take the first step in addressing them, we will consider publishing a non-audit report to the board of directors or auditor’s audit committee or take appropriate action others.
The confidentiality restrictions imposed on the ASIC under the Australian Securities and Investments Commission Act 2001 were amended in 2012 to allow us to report findings to the audit committee, board, and management of the entity being audited. We have published Regulatory Guide 260 Communication of Findings from Audit Files to Board Members, Audit Committee or Top Management (RG 260), which includes our criteria for communicating concerns from audit file assessments to audit committees and board members on an exceptional basis.
Perform an effective causal analysis
We recommend that audit firms perform, or continue to conduct, comprehensive and critical analyzes to identify the root causes of audit quality findings from ASIC’s audit inspections and the quality controls themselves. This includes identifying and implementing actions to address these underlying causes.
An effective internal quality analysis program is important for this process, including identifying individual engagement issues and thematic findings across commitments. Companies encourage partners and employees to further develop the following cultures:
The following must be taken into account:
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