Executing high-quality audits

Our system of quality control provides the foundation for our people to execute high-quality audits. We focus on understanding the risks involved in every audit and building teams that have the competencies and capacity to address those risks. We analyze our portfolio throughout the year to identify audits that may pose additional risks and provide support to individual teams.

Market share

We continue to have the leading market share in auditing Fortune 500 companies (29%), Fortune 1000 companies (30%) and Russell 3000 companies (26%). In 2017, we also continued to audit five of the top 10 companies on Fortune’s list of most admired companies.

Number of public companies we audit
2015 1,060
2016 986
2017 963

The number of public companies we audited declined in 2017 due largely to acquisitions. Consolidation was also a factor in the overall decline in the number of public companies listed on US exchanges.

Our total audit hours in fiscal 2017 were consistent with fiscal 2016, which means we devoted more hours on average to our public company audits.

The results of a brand survey conducted for us by an independent research firm indicate that business leaders recognize our commitment to audit quality. Our EY US audit practice ranked first or second among the Big Four in categories such as (1) best mix of talent, knowledge and skills, (2) strongly recognized for technical quality, (3) industry/sector expertise, (4) solving complex problems and (5) diverse teams and culture.

Building high-performing teams

A partner’s leadership of the audit team is vital to audit quality. The partner in charge of the audit has overall responsibility for the direction, supervision and performance of the audit and sets the tone for the team. For public companies, Assurance and Professional Practice leadership annually approves partner in charge assignments. We also assign an engagement partner to approximately 40% of our public company audits to assist the partner in charge in our larger or more complex audits.

About 57% of our audit partners serve as the partner in charge of a public company audit, and they each lead an average of two audits. Our partners who lead audits of mutual funds have a higher average number of audits because they often handle audits of multiple funds in the same complex.

Assignment of the engagement quality reviewer

Engagement quality reviews are an important element in our system of quality control. We assign a partner as an engagement quality reviewer (EQR) for each public company audit and provide them with focused training. The EQRs evaluate the significant judgments made by an audit team. EQRs participate in key meetings in all phases of the audit, beginning with planning, and they evaluate both the team’s risk assessment and responses to the risks the team identifies. 

Staffing engagements

We annually review the staffing of audit professionals from the senior through senior manager levels for each public company audit. As part of that review, we evaluate whether those professionals have the appropriate competencies and availability for their assignments.

Integrating specialists into the team

EY specialists are integrated into our audit teams to help us address complex information technology (IT) environments used to prepare the financial statements, technical tax matters and valuation issues. These members of the engagement team receive annual training on how to execute the required audit procedures.

Our IT specialist time represented 7.9% of total audit hours, up one percentage point from two years earlier. Tax and valuation specialist time represented 5.7% and 1.6% of total audit hours, respectively. This level of involvement has been consistent in recent years. 

Sector specialization

We believe that having our professionals develop a deep understanding of industry-specific issues improves the quality of our audits. To help them do that, our 16 sector leaders provide communications and training on industry developments.

Our sector leaders work with our industry specialists in Professional Practice to anticipate issues and develop thought leadership and enablement on industry-specific financial reporting and auditing topics.

Multinational audits

We often involve professionals from other EY member firms when we audit multinational companies. Our auditors on the lead team in the US use EY Canvas to monitor the execution of audits and connect with team members in other EY member firms around the world. They can also use EY Canvas to get real-time status updates on audit processes and issues.

We also promote audit quality around the globe by rotating professionals from our member firms into our US audit practice and sending high-performing professionals overseas.

Shared services

Some members of our audit teams are located in shared service centers. These professionals contribute to audit quality by specializing in certain routine audit procedures, which they perform under the supervision of our audit team members. As a result, our more experienced professionals are able to focus more of their attention on areas of higher risk in the audit.

All of our shared service personnel receive the same training and supervision and review of their work as other members of our audit teams. They are also required to follow our policies on confidentiality and privacy and adhere to our ethics and independence requirements. In fiscal 2017, their work accounted for 6.9% of public company audit hours.

Managing the audit

Timely and direct executive participation is critical to the execution of a quality audit. Our experience indicates that teams that complete audit work, including reviews by executives, at the appropriate time execute higher-quality audits. Our milestones program helps us promote strong project management by focusing on meeting completion dates for each phase of the audit.

Our milestones program also helps our audit teams accelerate the pace of their work. Our public company audit teams are performing 60% of their work before the fiscal year end of the company under audit. Taking work out of the busiest time of year leads to higher audit quality and enhances our people’s career experience. 

Teams track their progress on milestones through EY Canvas, which also allows partners and other engagement executives to monitor the audit team’s progress, supervise and coach the team and respond more quickly as needed.

EY Atlas, our new accounting and auditing research tool that is integrated with EY Canvas and is accessible on mobile devices, provides our professionals with faster, better and more relevant research capabilities to more easily find the information they need.

Supporting our teams

We continue to develop metrics to improve our ability to assess and respond to risk at the company and audit portfolio levels. For example, we use each team’s annual risk assessment in the continuance process to differentiate engagements and identify those that might benefit from more coaching or oversight. We also are exploring advanced analytical techniques to identify factors that indicate a risk to audit quality so we can intervene early when those factors are present. 

We provide our teams with coaching throughout the audit cycle before the audit is completed. This allows our teams to adjust their plans if necessary before we issue our auditor’s report.

This year, the Quality Network plans to coach aspects of more than 300 audit engagements, up nearly 30% from last year. These coaching sessions include:

  • How our teams are using our new approach to understand and document a company’s key business processes and identify potential risks of material misstatement
  • The audit team’s risk assessment and audit plan
  • How teams are applying the accounting and auditing guidance and training we have provided on the new revenue recognition standard

We now have nearly 150 professionals in our Quality Network, up from nearly 130 last year. Members of the network also support a number of other activities, including training.

Members of the Professional Practice group:

  • Consult with audit teams on financial reporting, auditing and SEC and other regulatory matters
  • Provide audit teams and the companies we audit with guidance and thought leadership
  • Provide tools that enable our teams to deliver high-quality audits, including sector specific content
  • Perform risk management activities
  • Evaluate our quality control system on an ongoing basis
  • Develop and operate our internal inspections program

Our 120 Professional Practice partners conducted an average of over 2,500 formal consultations annually with audit teams over the last three years. Revenue recognition and income taxes continue to be our top accounting consultation topics in fiscal 2017.

Our ratio of Quality Network and Professional Practice partners to audit partners remained constant in fiscal 2017 at 1 to 6.