Audit Quality – a Strategic Imperative

“Audit quality and independence needs to be aligned”

Edwin Selbst, Owner SARE Consulting, Assurance and Quality Specialist, lifts the lid on the production of Quality Audits.

Co-Dependence of Quality and Ethics

Recent audit scandals and failures, both locally and internationally, have served to highlight the crucial need for quality and ethics – both need to be positioned front and centre of every: audit firm; regulatory body; shareholders; business leaders and the greater investment community’s, agenda. Audit quality and independence needs to be aligned to ensure that the expectation gap in the market is narrowed and to ensure investor confidence is restored.

What is the backdrop to this?

“Audit quality is directly linked to ethics”

The International Ethics Standards Board for Accountants (IESBA) revised the International Code of Ethics in 2018 and audit regulators around the world responded with local amendments to their ethical codes. As audit quality is directly linked to ethics and specifically independence, this necessitated audit firms to respond to incorporate the additional requirements in their audit quality systems. A system of quality control sits at the forefront of audit quality maintenance as it focuses on: the independence of audit teams; the servicing of clients with competence plus due professional care; providing skills that will deliver audit quality whilst ensuring familiarity threats do not prevent the achievement of quality.

Audit Quality and Independence

“The managing partner of a firm is responsible for overall quality”

While audit quality is a collective effort, responsibility rests on leadership. Organisation’s quality control manuals incorporate the policies and procedures required to effectively carry out a quality audit. In the audit context, this means the managing partner of a firm is responsible for overall quality. On an audit engagement, an engagement partner is responsible for the audit quality for audit opinions which he issues.

“Independence is crucial”

Independence in the assurance market is crucial. The greatest challenge is how the auditor is perceived by other stakeholders. It is in this context that regulators around the world have focused on the independence aspect of ethics. As audit quality is directly linked to an auditor’s perceived independence, numerous improvements to quality control systems have been implemented to enhance independence. Enhancements include: clarification of roles such as key audit partners, external quality control reviewers as well as those that provide technical knowledge. Cooling off periods have been increased in order to further reduce the familiarity threat – this is where members of an assurance team either rotate; move off an engagement, or change roles while still involved. Increased levels of protection have also been introduced for clients where an audit firm has custody of client money or assets.

Focus of Audit Quality

“It’s a winning formula”

Enhancements to audit quality implemented as a result of international changes include:

    • Clarification of roles and responsibilities of key players as part of the assurance model.
    • Additional guidance around inducements received by the auditor, including gifts and hospitality.
    • The management of self-interest threats and the appropriate use of safeguards.
    • Alternative courses of action to be followed where a safeguard is not deemed an adequate response to reduce a threat to an acceptable level.

Are you compliant?

“You need to get with the programme”

The changes to the International Code of Ethics were effective from 15 June 2019, mandating all audit firms to implement same as part of their system of quality control. In this way they will ensure that they have responded to international and local compliance requirement and updated their systems of quality control to provide stakeholders with the enhanced independence and audit quality upgrades which are now effective.

Brief Bio:

Edwin Selbst, Owner SARE Consulting, Assurance and Quality Specialist
Edwin is a Registered Auditor and Chartered Accountant South Africa. He has in excess of 20 years in the assurance market, previously Head of Assurance at and prior to that was the audit technical partner at a medium-sized audit firm with a focus on both listed and family owned businesses. Edwin is the past chairman of SAICA’s Assurance Guidance Committee and still an active participant at the IRBA’s Committee for Assurance Standards.

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