The current COVID environment continues to present many challenges in the US, throughout the Americas, and around the world.
The current COVID environment continues to present many challenges in the US, throughout the Americas, and around the world. Despite the uncertainty in the economy and unprecedented disruption in business operations, companies and boards have continued to deliver transparent financial reporting to the capital markets. In this context, our EY US audit teams have risen to the challenge, delivering on the commitment to serve the public interest which is at the heart of our responsibility as auditors.
Drawing on the strength of our EY culture
In response to new economic and operating realities across industries, our teams have been laser focused on identifying risks and reemphasizing audit quality to continue building trust and confidence for the ultimate beneficiary of the audit – the investor. Adjusting to the requirements of virtual work, they have continued to perform globally consistent, high-quality audits with independence, integrity, objectivity and professional skepticism.
Our strong culture, rooted in values, teaming and the courage to lead, has been instrumental in driving sustainable improvement in our audit quality, as demonstrated by improvements in internal and external inspection results, year over year. And it has been the compass for our leaders and our teams as we’ve pursued a multi-faceted approach to improving audit quality, including expanding the use of data in the audit, expanding our focus on milestones and audit pacing, strengthening our system of quality control, and investing in the skills of our people. Our annual US audit quality report provides detail on the actions we are taking to deliver on our commitment to audit quality.
Driving continuous improvement in audit quality
The importance of a robust system of standards and regulation is on full display when crises occur and when high-profile challenges are discovered. Since 2002, with the passage of the Sarbanes-Oxley Act, the US capital markets have benefited from strong, coordinated regulatory standards and effective independent oversight by both audit committees and the PCAOB.
Whenever corporate frauds or other wrongdoing are identified, irrespective of which firm is the auditor, EY US always examines our policies and practices and takes the opportunity to learn and enhance our processes where necessary, including enhancing continuously our focus on fraud within the audit. While high-profile audit challenges are uncommon, they have occurred and even one is too many.
This all comes back to our robust system of quality control which is proactively assessed, managed and monitored on an ongoing basis. Our system of quality control focuses on all critical aspects of our audit practice that support the execution of quality audits, including client acceptance and continuance, independence, methodology and training and staffing among others. No client or external relationship is more important than the ethics, integrity and reputation of EY which is reinforced from our tone at the top, code of conduct, key process steps and related controls.
Oversight for component audits outside the US
Many of our clients have a reach beyond the US, and we have maintained our rigor around supervision and review of component audits throughout the pandemic. When our audit work extends beyond the US, we have clearly defined processes for review and supervision of component teams supporting us in issuing our EY US audit reports. In these situations, we determine our level of involvement based on a number of factors including: our understanding of the nature and significance of the operations in the particular jurisdiction, our assessment of risks of material misstatement at those other operations, management’s assessment of risks and expectations and our experience with the teams performing the work.
Our global Sustainable Audit Quality program establishes a strong system of quality control that enables each member firm to execute high-quality audits while providing a unifying culture and a shared set of values for our auditors around the world. The member firms of EY have a strong track record of working together and delivering on these commitments.
Valuing and incorporating independent perspectives
We also actively seek out independent perspectives and are committed to incorporating them into our efforts to further strengthen audit quality, risk management and our system of quality control. This is why EY’s US firm meets regularly with our three-member Independent Audit Quality Committee (IAQC) and seeks the IAQC’s feedback and advice about aspects of our business, operations, culture, talent strategy, governance and risk management that affect audit quality. The members of our IAQC have extensive experience with public company audits and financial reporting and provide us with a range of valuable perspectives represented in the financial reporting ecosystem.
External and internal monitoring of quality
In the US, we gain valuable insights from the Public Company Accounting Oversight Board’s (PCAOB) inspection process; it assists us with identifying areas for further attention and enhancing our system of quality controls to fulfill our responsibilities to investors, other stakeholders and the capital markets. Our PCAOB inspection results have shown steady improvement in both the rate of inspection findings and type of inspection findings. The rate improved from 31% for the 2017 report to 26% for the 2018 report.
Internal inspections are performed on engagements each year through our annual Audit Quality Review (AQR) program as an important element of assessing the system of quality control at the member firm, regional and global levels. We have had continuous improvements in these results since 2015.
Continuing on a proven path
Over the past two decades, the US public company auditing profession has engaged actively with policymakers and others with an interest in high-quality auditing. The result has been significant, demonstrable gains in audit quality, investor confidence and the reliability of financial reporting.
In this era of the pandemic we are adjusting for the future forward, but we will also continue down the path we’ve been on in the US because, put simply, it’s working.