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Assessing Audit Quality

Many attempts have been taken for defining 'audit quality' in the past. However, none has stemmed a definition that has attained universal acceptance and recognition. It is because audit quality is an intricate and multi-faced concept. Audit quality is conditional on many direct and indirect influences. While the direct influences on audit quality are more emphasized by some, this point of view is not adequate in addressing the question of whether the auditor has attained audit quality in the broader context. Perceptions of audit quality differ among stakeholders based on the extent of their direct involvement in audits and on the perspective through which audit quality is assessed by them. It is recommended by the differences in stakeholder points of view on audit quality that one should not accept one single element as the leading stimulus on audit quality.

In theory and practice, audit quality can be regarded based on three fundamental aspects; inputs, outputs and context factors. Besides auditing standards, personal attributes of the auditor like experience and skill, mindset and ethical values are the key attributes of audit quality. The audit process is another important input as mattes like the dependability of the audit procedures, efficiency of the tools used for audit, and the obtainability of sufficient technical support largely contribute to support executing a quality audit. Audit outputs significantly influence the audit quality as the stakeholders consider these outputs to evaluate audit quality. For instance, the auditor's report is considered a key output, and it has a positive influence on the audit quality. Other context factors are also there that largely contribute to the audit quality, such as corporate governance mechanism, law and regulations, and others.

Another key aspect associated with audit quality is whether it can be judged by results. Some key aspects are there that help to judge the audit quality. These aspects include the results of the firm's internal quality review, results of the PCAOB inspection, frequency and impact of the restatements of financial statements for errors, and fraud and other misconducts related to financial reporting. For example, financial statement restatement in the present year implies that the auditor failed to detect the material misstatements in the previous audit. On the other hand, the findings of the PCAOB inspection identify the companies where the auditor failed to perform the audit as per the auditing standards leading to a deteriorated audit quality.

The quality of financial reports is key to confident and knowledgeable investors and markets. The independent audit's purpose is to give confidence in the financial reports' quality. It is essential to ensure improved audit quality and consistent audit execution to maintain confidence in the independence assurance the auditors provide. The Center of Audit Quality (CAQ) has supported the Audit Quality Indicators (AQI) developed by the PCAOB, which are essential to improve the overall audit quality. These indicators fall into four key areas: firm leadership and tone at the top, experience, knowledge and workload of the engagement team, monitoring, and auditor reporting.

The leadership of the audit firm, through the tone at the top, stresses audit quality and holds itself responsible for the system of quality control of the audit firm. The discussion of the engagement team with the audit committee should include a summary of the quality control and transparency of the audit firm and how audit quality is emphasized. The significant elements to execute an audit is the engagement team's experience, knowledge, and workload. It is important to have the collective experience and knowledge of the audit engagement team to achieve and improve the audit quality. It helps the audit committee in understanding the engagement team's structure and exemplifying certain information associated with the knowledge, tenure and relative experience of the key members of the audit team.

It is possible to improve the audit quality by communicating the audit deficiencies identified so that the necessary steps can be taken to eradicate those deficiencies. In this context, two important aspects are the Internal Quality Review Findings, as these findings are the indicators of audit quality and PCAOB Inspection Findings, as the findings of the PCAOB can be used to further enhance the audit quality. Audit quality can further be improved by the discussion of the auditor with the audit committee on the firm-level trends of financial statement reissuance restatements, previously issued reports on the internal controls over financial reporting and common issues of themes in financial statement restatements and removal of the reports on internal controls over financial reporting.

Ifac.Org, 2022, https://www.ifac.org/system/files/meetings/files/6086_0.pdf. Accessed 6 Apr 2022.

Pcaob-Assets.Azureedge.Net, 2022,

https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/rulemaking/docket_041/release_2015_005.pdf?sfvrsn=de838d9f_0. Accessed 6 Apr 2022.

Thecaq.Org, 2022, https://www.thecaq.org/wp-content/uploads/2019/03/caqresourceonauditqualityreporting.pdf. Accessed 6 Apr 2022.

"CAQ Approach To Audit Quality Indicators (April 2014) | DART – Deloitte Accounting Research Tool". Dart.Deloitte.Com, 2022, https://dart.deloitte.com/USDART/pdf/61b4d1c5-3f81-11e6-95db-a9f77215d712. Accessed 6 Apr 2022.

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[Accessed 21 July 2024].

My Assignment Help. 'Understanding Audit Quality: Inputs, Outputs, And Context Factors In Essay.' (My Assignment Help, 2022) <https://myassignmenthelp.com/free-samples/acc630-auditing-and-assurance/universal-acceptance-and-recognition-file-A1E1FF5.html> accessed 21 July 2024.

My Assignment Help. Understanding Audit Quality: Inputs, Outputs, And Context Factors In Essay. [Internet]. My Assignment Help. 2022 [cited 21 July 2024]. Available from: https://myassignmenthelp.com/free-samples/acc630-auditing-and-assurance/universal-acceptance-and-recognition-file-A1E1FF5.html.

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