Ernst & Young LLP (“EY US” or “the firm”) has issued its 2021 audit quality report, “Our commitment to audit quality,” which highlights sustained improvements in audit quality and steps the firm is taking to continue to improve audit quality and strengthen its system of quality control.
“The independent auditor’s role in promoting trust and confidence in the capital markets is critical, and our 2021 report highlights our commitment to audit quality,” said Kelly Grier, EY US Chair and Managing Partner. “I am so proud of how we’ve continued to focus on the fundamentals – performing high-quality audits with integrity, independence and professional skepticism – while using technology to innovate how we audit and meeting new challenges such as reimagining where we’ll work and how we will maintain our culture of belonging.”
EY US audit teams deliver audit quality by taking a data-first approach that gives us a better understanding of a company’s business and acting with integrity, objectivity and professional skepticism. The firm’s system of quality control is designed to prevent and detect risks to audit quality while promoting a culture that emphasizes audit quality and a responsibility to be accountable for the quality of one’s work and actions.
The report demonstrates how the firm’s membership in the EY global organization provides a shared set of values for auditors at EY member firms around the world and enables large-scale investments in technology, training and methodology.
“We continue to innovate and are using the lessons of the pandemic to reimagine how to deliver high-quality audits and serve the public interest now and in the future,” according to John King, EY US Vice Chair – Assurance. “This includes enhancing our data-first approach, leveraging technology to address emerging risks, investing in our people, and actively engaging with regulators, standard setters and other stakeholders about the changing expectations for corporate reporting on topics such as environmental, social and governance (ESG) matters.”
Highlights from the 2021 report include:
Delivering measurable improvement as demonstrated by the 2020 PCAOB inspection results
The Public Company Accounting Oversight Board (PCAOB) inspection process provides EY with valuable findings that are used to drive continuous improvement in our audit approach and to strengthen our system of quality control.
The firm is encouraged by the sustained improvements reflected in its 2020 inspection results and recognizes the efforts EY teams have made to deliver them. Key findings of the PCAOB inspection report include:
- Fewer findings overall. The PCAOB identified Part I.A findings in eight of the 52 issuer audits (15%) inspected in 2020, down from 11 of 60 issuer audits (18%) in 2019 and 14 of 54 issuer audits (26%) in 2018.
- Reduction in audits with multiple inspection findings. The number of audits included in Part I.A with multiple inspection findings declined to four in 2020 from seven in 2019 and 11 in 2018.
- Sustained improvement in areas of recurring inspection findings. As a result of the hard work of our teams, we continued to see reductions in areas of recurring findings related to testing internal controls and evaluating estimates.
Expanding diversity, equity and inclusion efforts
Diversity, equity and inclusion (DEI) is a key pillar of the US firm’s strategy and its commitment to delivering high-quality audits. Diverse perspectives, combined with an equitable and inclusive culture, drive better decision-making, stimulate innovation and increase our agility. We staff our audits with diverse teams, and 56% of the audit partners and managing directors we promoted recently were women and racially and ethnically diverse individuals. This year, EY US also launched the EY Career Path Accelerator, a first-of-its-kind program to help eliminate barriers to entry and increase diversity in the accounting profession. The program helps students jump-start their careers by entering the accounting profession up to one year earlier and provides an accessible and affordable path for CPA licensure.
Over the past year, EY US has invested $4 million collectively to four Historically Black Colleges and Universities: Hampton University, Howard University, Morehouse College and Spelman College. The firm also expanded its anti-racism efforts, launching the EY Social Justice Fund and becoming an inaugural donor of the Ascend Impact Fund, which aims to raise awareness about anti-Asian racism.
Making significant progress in a multi-year digital audit journey
The 2021 report details the firm’s progress in its journey to transform its audits and realize the potential of a digital audit. A data-first approach enhances audit quality because it helps teams focus on the key risks in an audit and identify new risks, including potential fraud risks, that arise during the year.
In the current audit cycle, 95% of audit teams on US public company audits are fully implementing the firm’s digital audit methodology. That means they are analyzing digital data about a full population of a company’s transactions to enhance their risk assessments throughout the audit and make better informed choices about which items to test.
Additionally, audit teams on audits of US public companies continue to expand their use of data analytics by using our suite of EY Helix data analyzers to develop a deeper understanding of the companies they audit, better identify anomalies and obtain audit evidence. For our audits of 2020 financial statements, we delivered nearly 7,000 data analyzers.
Teams on US audits also use sector-specific EY Helix data analyzers to help them evaluate transactions and metrics that are unique to the industry in which the company under audit operates.
To support this transformation, the firm’s professionals at all ranks completed more than 190,000 hours of training on performing a digital audit in 2021.
Seeking independent advice on audit quality
EY US leaders held regularly scheduled quarterly meetings with the three-member Independent Audit Quality Committee (IAQC), soliciting feedback in areas affecting audit quality, including business, operations, culture, talent strategy, governance and risk management.
EY US leaders have also consulted extensively with the IAQC regarding emerging issues associated with the pandemic.
Leveraging the multidisciplinary firm
The firm’s multidisciplinary strategy allows us to include in our audit teams EY professionals who focus on tax matters, information technology (IT), valuation matters and, in certain audits, forensic accounting to help us deliver high-quality audits at a time when IT environments, business models, transactions and world-wide tax regimes are increasing in complexity. In fiscal 2021, EY US specialists accounted for a total of 18.8% of total US public company audit hours.
For more information, highlights of the report are available at ey.com/ourcommitmenttoauditquality. The full 2021 audit quality report is also available for download.
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This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.