Monitoring

Monitoring is an important element of our system of quality control. It enables us to evaluate whether we have reasonable assurance that our work meets professional standards and regulatory requirements and whether the actions we are taking improve audit quality.

We are performing more monitoring earlier in the audit cycle to timely identify any changes to our training and guidance and to identify best practices that can be promoted across all of our audits. We also monitor our compliance with applicable independence requirements.

Evaluating our system of quality control

Maintaining an effective system of quality control is critical to our ability to perform quality audits. To make sure our system is effective, we test the design and operating effectiveness of key elements, such as our processes for engagement acceptance and continuance, partner assignments and evaluating the workloads of our audit executives.

Early monitoring

We monitor our performance in the early stages of an audit so we can provide timely feedback to our teams. These reviews also inform our thinking about whether the actions we have taken to drive further improvements are having the intended effect and whether we need to take additional actions to enhance our training, guidance and tools on a particular topic.

Consistent with last year, we are conducting pre-issuance reviews of the work papers prepared by 60 audit teams as they plan and execute procedures to test the design effectiveness of a company’s internal control over financial reporting, determine the scope of multilocation audits and/or identify and address risks related to information produced by the entity. In some cases, we are also validating that the teams’ substantive audit strategies are commensurate with risks identified.

Internal inspections of completed audits

We also conduct inspections of selected engagements after we issue our auditor’s report through our Audit Quality Review program. Selections are based on factors such as how long it has been since a partner’s last inspection and the complexity of the audit.

Through these reviews, we measure compliance with professional standards, regulatory requirements and our policies and procedures and focus on specific audit areas to evaluate audit quality. We continue to accelerate the timing of these reviews to help us identify information that we can use to quickly adjust our audit approach and drive improvements in audit quality. In 2017, we enhanced our inspections to capture more detailed information on whether recent Firm actions are driving positive team behaviors and having the intended results.

During our 2017 inspection year, we reviewed approximately 120 public company audits (generally of financial statements for the year ended 31 December 2016). We conducted reviews of approximately 100 audits in our 2016 inspection year and approximately 120 audits in our 2015 inspection year.

Independence monitoring

Independence of the external auditor is one of the cornerstones for providing trust and confidence to the capital markets. Our system of quality control includes policies and procedures to provide us with reasonable assurance that we are complying with all of the applicable rules governing our independence.

EY’s global independence group supports EY professionals around the world to address the applicable independence standards and regulatory requirements and develops processes and tools to enable us to monitor compliance. We have 24 partners in our EY US independence group who support our audit teams.

We reinforce our policies, processes and systems through independence training and messaging that compliance with our independence policies is essential. Quarterly, all EY US professionals who work on audits and certain others, based on their role, are also required to confirm compliance with our independence policies and procedures.

Restatements

We monitor the nature and extent of restatements of the financial statements of the companies we audit and evaluate whether there are potential trends that require additional action.

The data in the table below is based on our audits of SEC registrants filing on Form 10-K and our audits of mutual fund issuers each year. The number of mutual fund issuers was approximately 550, 575 and 675 in 2016, 2015, and 2014, respectively.

Year of filing Number of restatements % of issuers we audit
2014 13 0.6
2015 15 0.8
2016 8 0.5