So how do the firms make sure that, with all those things going on, they can deliver a consistently high-quality audit? They need to put processes in place that identify these issues and address them before they become a problem in the final audit, or in the inspection we carry out. To assess audit quality, we need to consider the number of deficiencies as well as the firm’s quality processes.
I think it would be unrealistic to suggest that, beyond 2019, we’re going to get the percentage of deficiencies down to the single digits in, say, a four-year period, but getting into the mid-teens would be doable. You’ve got to take into account that these are very large firms. They carry out multiple audits globally with a number of affiliates, so making these changes is not insignificant. But they need to start working on it so that we can get into that single-digit territory over the next five or six years.
Q: The recent CPAB Audit Quality Symposium suggested that auditors should provide oversight or assurance over information beyond the financial statement. How far could that movement go?
A: The audit is definitely the foundation, and there are certain things that you should be doing. The challenge is to be relevant going forward. Maybe we need to look at things slightly differently by industry.
If we look at oil and gas, for example: what drives the value of a company in that sector? It’s their cost to extract the product, the price of oil, the reserves – things of that nature. That’s very different from a financial institution, for example. I would suggest that we probably need to think about what is foundational, and then about what may change by industry.
Q: In 2016, CPAB launched a pilot project on Audit Quality Indicators (AQIs). How important are they and should audit firms, audit committees, regulators and companies be using these types of quantitative measures more?
A: If you want to have an effective audit, in my view, you have to have an effective auditor, effective management and an effective audit committee. One of the things we did with AQIs was to run a pilot with a number of reporting issuers and public companies, involving the audit committee, the auditor and the CFO. We asked them to select 5 to 10 indicators that they would track, and we asked that half of those would be related to risks, so that when you prepare the audit, you determine what the key risks are for this audit.
We’ve been pleasantly surprised by the interaction among the CFO, the audit committee and the auditors. It’s driven a lot of information which, we think, is enhancing what audit committees do. It’s bringing the preparers into the equation and working with the auditors to make them more effective.
Q: What are the benefits of IFIAR’s new secretariat?
A: In the past, the chair and the vice chair would provide the secretariat, so you would lose that corporate memory. But I think it’s more important than that. The secretariat, and the board, will drive a strategic plan for IFIAR. We’ve never had that before.
We’ll drive an operating plan that achieves the strategic plan, and we’ll tie the working group initiatives back to that plan. But, importantly, I also want to see the secretariat reach out to members and help them build their capabilities so that we can share a lot of information.
The key question is: how do we enhance our members’ capabilities? That means anything from sharing our inspection methodologies to short-term secondments – that’s one of the things we’re suggesting, to help regulators who are just starting out or who may have a special need to spend a two- or three-week period somewhere.
The secretariat is key to moving this forward. I’m quite excited about 2018, and into 2019 I think we’ll see some significant improvements in terms of how we add value to our membership.