The Right Measurement

The term audit quality encompasses the key elements, both contextual and quantifiable, that create an environment which maximizes the likelihood that quality audits are performed on a consistent basis. Globally, many thousands of audits are performed annually—in the public interest and in accordance with high-quality international standards for audit and ethics.   However, consistent with a commitment to continuous improvement, regulators and the profession “cannot manage what they do not measure.”

• Over 40,000 audits of public listed companies are conducted each year without issue. From this perspective, the number of significant audit failures is extremely low. The level of attention given to the auditor’s potential role in a small number of recent corporate failures exaggerates the perception of problems with audit and invites overreaction.  However, it is always appropriate to evaluate the root causes of audit deficiencies; IFAC and the accountancy profession are committed to continuous improvement, recognize the negative consequences of any audit failure, and take their public interest role seriously. 
• Audits play a crucial role in supporting confidence in capital markets and economic transactions, enabling the global economy to thrive.  Audits also help limit corruption and engender a higher level of public trust in institutions.  Data consistently shows that confidence in markets around the world is high, demonstrating that audit is fulfilling one of its core purposes.
• We believe that audit quality is complex and difficult to define, but can best be assessed through a multi-factor Framework of Audit Quality.  This said, IFAC supports audit quality disclosures like the Audit Quality Indicators developed by the Center for Audit Quality in the US and elsewhere, peer reviews, and other initiatives—aimed at communicating a better understanding of audit quality, especially through the incorporation of quantitative, relevant, comparable metrics. While AQIs and other quantitative measures must be interpreted in context and are audit engagement-specific, the lack of such quantitative audit quality measures makes it difficult to generate comparable data within or across jurisdictions or to observe trends over time. 
• To the extent quantitative measures of audit quality exist, IFAC believes that, in the aggregate, they point to a positive trend. The number of regulatory findings observed in the high-risk audit files reviewed by regulators continue to decrease globally in all areas of audit and represent a very small fraction of the thousands of Public Interest Entity audits conducted in IFIAR jurisdictions.  In the US, the largest PIE jurisdiction, the number of actual restatements has dramatically declined. In evaluating data on audit quality, it is important to recognize that the number of regulatory findings, regardless of severity, in a sample of high-risk PIE audits cannot be extrapolated across all audits.
• IFAC encourages the profession to demonstrate leadership in better assessing and communicating audit’s value, quality, and success and to actively engage on these issues by providing more and better data that informs policy discussions.  IFAC calls on regulators and PAOs to collect, analyze, and publish such data—both aggregate and granular—with the goal of enhancing transparency and promoting higher audit quality.