The PCAOB Audit Quality Indicator Framework Project: Feedback From Stakeholders

Abstract

Audit Quality Indicators (AQIs), as defined by the Center for Audit Quality, include four different elements:firm leadership and tone at the top; engagement team knowledge, experience, and workload; monitoring; and auditor reporting. AQIs are quantitative and qualitative measures designed to improve audit quality and help audit committees select the best audit firm for their current needs. They are intended to increase the reliability and accuracy of financial reporting. The Public Company Accounting Oversight Board (PCAOB) has issued a concept release proposing twenty-eight potential AQIs for use in the United States. The PCAOB release describes the AQI reporting framework and asks for public opinion on whether or not it should be implemented. This study reviews the comment letters in response to PCAOB Docket 041,Concept Release on Audit Quality Indicators, and the AQI reporting frameworks currently in place in the United Kingdom, Singapore, and other countries. After reviewing the PCAOB’s proposed AQI framework, response letters to Docket 041, and the AQI frameworks used in other countries, this paper provides an opinion on how the PCAOB should proceed with the AQI framework initiative in the U.S. The analysis suggests that AQI reporting should not be mandated in the U.S., but should become a flexible and voluntary framework that provides valuable information, enhances transparency in the audit profession, and establishes a commitment to the improvement of audit quality.

The Effect of Skepticism, Time Pressure, and Remote Audit During the COVID-19 Pandemic on Audit Quality: A Study of Auditors’ Perception

“…The Center for Audit Quality (2014) defines audit quality indicators (AQI) into four elements: (a) company leadership and tone at the top; (b) knowledge, experience, and workload of professional staff or auditors; (c) monitoring and quality control; (d) reliable, valuable and timely reports. Research conducted by Pinello et al (2019) on the 28 AQIs framework supports that AQIs can improve transparency and audit quality. Knechel and Shefchik (2014) describe the audit quality framework, which consists of inputs (independence, knowledge, experience, and professional skepticism of auditors), processes (audit processes, materiality, risk assessment, and quality control), and outcomes (financial statement's restatements, litigation against auditors, accuracy of audit reports, quality of financial statements, and regulatory reviews).…”

“…DeAngelo (1981), Pinello, Volkan, Franklin, Levatino, andTiernan (2019), Tjun Tjun, Marpaung, andSetiawan (2012), also Hu (2015) define audit quality as an audit that allows the auditor to find violations or material misstatements and report these violations. In carrying out the audit, the auditors must comply with auditing standards, the audit code of ethics, and the methodology or guidelines determined by the audit authority (Lee, Su, Tsai, Lu, & Dong, 2016).…”

Determinant of Audit Quality: The Guardian and Justice Organizations (Target 16.6 SDGs)

“…The auditor's integrity and independence influence his or her of reporting misstatements. General Accounting Office (GAO) said that a quality audit is "an audit conducted in accordance with generally accepted auditing standards to provide reasonable assurance that the financial reports and related disclosures under audit are (1) presented in accordance with generally accepted accounting principles and ( 2) are not materially misstated, whether due to error or fraud" [4].…”