In its recent Annual Review of Audit Quality, FRC reiterated the importance of high-quality audit work in ensuring investors, businesses and the public can trust financial statements, emphasising that audit quality needs continuous refinement and improvement.
In the Review, Sarah Rapson, Executive Director of Supervision at the FRC, commends the largest four of Tier 1 firms for the work they have undertaken over the past years that has resulted in the improvement in their delivery of high-quality audits, but mentions there is a widening gap between the four largest firms (Deloitte, EY, KPMG and PwC) and the other 2 firms in the Tier 1 bracket (BDO and Forvis Mazars).
In this article, we explore how to improve audit quality, based on the findings from the Review.
What is high-quality audit?
The FRC includes the following elements in its definition of a high-quality audit:
- It provides a high level of assurance that the financial statements give a true and fair view;
- It complies with the spirt and the letter of auditing and ethical standards;
- It is driven by a robust risk assessment and informed by a thorough understanding of the entity and its environment;
- It is supported by rigorous due process and evidence and involves the exercise of judgement and professional scepticism;
- It challenges management and obtains sufficient audit evidence for the conclusions reached;
- It reports unambiguously on the auditor’s conclusion on the financial statements.
A word on ISQM
The Review highlights the importance of ISQM (International Standard on Quality Management) 1 as a fundamental change to quality management.
ISQM 1 marked the transition from a reactive to a more proactive stance while highlighting a culture of professional ethics, with all personnel being responsible for audit quality. It came into effect on 15 December 2022 and was updated in March 2023.
Given that this is the first year since this new standard, many firms are still in the process of shifting their processes to conform.
FRC notes that all firms in the Review have areas to improve in their new systems of quality management, such as improving their monitoring process and enhancing evidencing evaluation processes.
Considerations for improving audit quality
The FRC highlights several developments of significant influence on audit quality. We will cover two of them here: the future of the audit profession and technological innovations.
The future of the audit profession
Ensuring the audit profession remains viable and interesting to new talent means firms need to invest in quality training, development and mentoring. The reality is that many firms struggle with staffing to some capacity, stemming from the high responsibility associated with auditing work, the high-pressure environment it represents and perceived poor work-life balance.
This is especially pertinent for the younger generations entering the profession. These new professionals are used to leveraging technology to get around repetitive tasks and to help mitigate some work pressures and may not be willing to work for a firm that doesn’t support this.
Technological innovation
Advancements in technology will have a critical impact on the audit profession, as they unlock smarter and more efficient ways of working. The Review says that smart and appropriate use of technology underpins a strong and flexible audit market and emphasises the importance of implementing the right tools.
Firms have a choice of audit-specific technologies to boost client collaboration, keep a clear and immutable audit trail or to obtain bank statements instantly leveraging Open Banking – and this is only the beginning. As AI is becoming a more prominent feature in the industry, new features and workflows will become available – at this stage, no one really knows what this will look like.
In conclusion
Forward-looking firms have options available to them to positively impact their audit quality in the short term in addressing staff satisfaction and unlocking the power of technology. Both these elements can be achieved by leveraging an audit quality platform such as Circit.
Circit enables audit firms to verify the world's assets at source. We help teams save time on processes, tracking request statuses and collaboration with evidence providers.
Firms using Circit deliver higher quality audits by elevating the client experience and streamlining direct from source collection. With 3x faster turnaround time and 2,5h saved per client bank account, audit staff will be able to focus their time and attention where it counts.
