News about what's going on in the world of audit has been ubiquitous over the past couple of years. A recent development is that the Financial Reporting Council (FRC) in the UK has requested that Audit Quality Indicators (AQIs) need to be used more effectively to ensure any corrections can be given in good time. AQIs are being used by audit firms to highlight audits that need improving and to promote good practice.
However, when the FRC looked further into the use of AQIs across the largest audit firms, they found that monitoring of the AQIs typically took place after completion of an audit, rather than before, or during one. So, the FRC want to see audit firms focusing on more "forward-looking and granular AQIs to ensure they are identifying early interventions which could prevent deficiencies in audits".
Outside of the UK, audit teams in some countries are reporting AQIs relating to individual audits, directly to audit committees. As a result of this, the FRC is now looking to see if a similar approach in the UK would improve engagement of the audit committee. At the moment, AQIs that are reported on in the UK focus on five areas. Elsewhere, this can be 8 or more. Also, publicly-reported AQIs are not necessarily comparable across other audit firms, and really interestingly, there are few chairs of audit committees who are even aware of any published AQIs.
So as part of the FRC's thematic review, it sounds like there is an achievable need for a more rigorous approach. FRC executive director of supervision David Rule said: "Audit firms need a relentless focus on improving audit quality. Our review found that audit quality indicators, if used correctly, can help firms take decisive and immediate actions to improve audit quality."
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