Worldwide, in the financial press right now, we’re hearing a lot about the term audit quality. There have been numerous inquiries all over the world, such as factory audit service, ISO9000 quality system audit service and social compliance audit. In today’s article, in-depth the discussion about the term audit quality, what exactly is audit quality and how exactly do we measure it.
What Is Audit Quality?
A quality audit will ensure that the financial statements accurately reflect the underlying economic reality. Audit quality is linked to the quality of the accounting information and the systems at the clients. Audit quality is something that will lend itself to increasing the quality of the economic information coming from the organization. The system means the international control system plus the quality of management and anyone who is preparing the information. However, audit quality is not easy to define.
How Is Audit Quality Measured?
There is no single objective measure of audit quality, even composite measures don’t work. A quality ordered if you consider it, so it may be that the auditor goes in there and finds that there is real quality information and real quality systems which you put in place. Then the auditor doesn’t really have to do much, they follow the auditing standards in, that’s a quality audit. Another quality audit is the system’s deficient, the information is deficient, the underlying information in the first place does not follow, the accounting information does not follow economic reality, so the auditor has to work really hard. In those places they may not be able to get to 100%, but they really do improve the credibility of that information.
There are a number of dimensions to quality measured. What we need to do is try and capture those different dimensions, measure those different dimensions so that we can pick up some of those quality. The different dimensions can lead individually to behaviors that we don’t want to necessarily have being judged on. How much the order defines in the financial information and end gifts adjusted through, and that’s very much along another definition of order quality that academics use. As to firstly it’s what do you find and then is what do you report. If the information is very good quality, or it may not find anything, so that dimension is not going to be necessarily beneficial. If the underlying information is very poor, there might be a heck standing and that still may be a deficient audit. Although the auditor has improved the information.
The accounting standards are becoming much more complex, and they’re requiring much more professional judgment. Therefore, we see the professional judgment going in there, we see the areas in which they have to be applied increasing in professional judgment and then the auditing standards are principles-based. They require professional judgment. Professional judgment and professional skepticism, two of the underlying characteristics of the auditor. We are seeing an increasing imposition on the auditor through the complexity and the judgments that are involved in Accounting Standards through the complexity we’re seeing in the organizational structures that we’re auditing. There’s increased complexity in the auditing standards that are responding to those particular areas.
Poor Audit Quality
Poor audit quality could be because the auditor fails to detect material misstatements, or they detect them, but they fail to push management to make changes or modify their opinion if management refused to make those adjustments. If you fail to detect a material misstatement because you didn’t identify the significant risks correctly, you didn’t gather the correct evidence, or you failed to meet the auditing standards, then that’s one component of audit quality.
What Can You Do To Support Audit Quality?
1. Understand Your Audit Standard
Understanding the underlying meaning, that will mean that you’ll be able to apply those auditing standards out in the field. Don’t be afraid to come back to your auditing standards if you’re unsure about something, they are meant to be there as a guide for auditors.
2. Actively Work With Your Audit Team Members
No audit is done alone by a single person, that means the whole team needs to work together as one collective body. Something you might identify in inventory, you might want to bring up with people who are auditing sales or some other part of the accounts, because everything is interconnected. Working with the team also means that you’re working with people they have more experience than you and less experience than you. Leverage off and take advantage of the experience within your audit team.
3. Remember To Always Apply Your Professional Skepticism
Professional skepticism, it’s enshrined within our auditing standards. Asking yourself, does this make sense with what we see about this client. Does this piece of information make sense within the whole puzzle of the organization? If we can apply that professional skepticism, then you’ll be doing a lot to support order quality.