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Audit Quality Drives Continued Audit Relevance

Business-peopleAuditing is at the very core of our profession; only CPAs are authorized by law to conduct financial statement audits. In today’s business environment, entities are increasingly interdependent and information and accountability have assumed a larger role in society. As a result, the CPA’s independent audit of an entity's financial statements is a vital service to investors, lenders, sureties, businesses, regulators and other participants in the marketplace. Mergers, acquisitions, the capital markets and credit sources depend not only on the information that management provides in financial statements, but also on the CPA’s audit opinion as to whether the financial statements are free of material misstatements, whether caused by error or fraud.

We are committed to maintaining our profession’s excellence in a fast-changing and complex business environment. Consistent with that goal, the AICPA has launched a new Enhancing Audit Quality initiative. Sue Coffey, CPA, CGMA, the AICPA’s Senior Vice President of Public Practice & Global Alliances, is leading this comprehensive, holistic effort to look at auditing from multiple touch points, from the CPA exam and ethics enforcement to auditing and quality control standards, to learning and competency development and changes to peer review, and ultimately to a transformation of practice monitoring.

The cornerstone of our EAQ initiative involves near- and long-term changes to the Peer Review Program. For more than 35 years we have been upholding the public interest through a robust and effective Peer Review Program that monitors firms’ audit and attest services. We were the first profession to require peer review for licensure, and peer review has been a membership requirement for 25 years. Peer review also has helped reveal audit issues that firms are experiencing and identify resources the AICPA can develop to support firms in those areas. For example, the Governmental and Employee Benefit Plan Audit Quality Centers are continually working to assist firms doing audits in these specialized industries.

The AICPA’s Auditing Standards Board just completed its five-year project to rewrite generally accepted auditing standards and the quality control standard so that auditors will better understand the requirements for a high-quality audit. In addition, the many departments within the AICPA that develop competency tools and resources continue to help our members achieve the highest level of audit quality. The Center for Audit Quality, which is affiliated with the AICPA, and the Public Company Accounting Oversight Board have been very active with initiatives to enhance audit quality. Recently, the CAQ issued its Audit Quality Indicators approach and is developing other tools. On the international front, the European Union recently passed extensive audit reforms that will take effect over the next 2 to 3 years. Elsewhere in the world, the International Auditing and Assurance Standards Board has issued a framework on audit quality (the AICPA was instrumental in its development), and other countries and accountancy organizations have been working on audit quality, including Canada and Australia.

Without question, the audit should provide value to the user, and value goes hand-in-hand with quality and transparency. The audit process should evolve both in what auditors examine and communicate. In addition, though, the people and firms doing audit work must be trusted to deliver high-quality performance.    

Of course, you are the most important part of this effort to raise the bar on audit quality. Each and every CPA around the country contributes to the profession as a whole. Your input to the Enhancing Audit Quality effort is essential and you can help shape what is to come. This summer, we will release a discussion paper that will highlight the AICPA’s plans and perspectives on moving forward. I’m excited to engage in a dialogue and work together to address this profession-wide audit issue. Let’s pave our own path and take the continued journey to improving audit quality and maintaining audit relevance. 

Barry Melancon, CPA, CGMA, President and CEO, American Institute of CPAs.

Business people image via Shutterstock

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