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PCAOB Requests Comment on Audit Quality Indicators

The PCAOB issued a concept release requesting comment on audit quality indicators (AQIs) last week. AQIs are “a portfolio of quantitative measures that may provide new insights about how to evaluate the quality of audits and how high quality audits are achieved.” In 2008, the Department of the Treasury released the Final Report of the Advisory Committee on the Auditing Profession which suggested that the PCAOB develop what would become the AQIs, and in 2013, the PCAOB identified developing AQIs a priority.

The PCAOB suggests that the use of AQIs “may inform discussions among those concerned with the financial reporting and auditing process” which “in turn, may strengthen audit planning, execution, and communication and could improve audits and stimulate competition among audit firms based on the quality of work.” The release requests comments on 28 potential AQIs in three categories:

  • Audit Professionals — measures dealing with the availability, competence, and focus of those performing the audit.
  • Audit Process — measures concerning an audit firm's tone at the top and leadership, incentives, independence, investment in infrastructure needed to support quality auditing, and monitoring and remediation activities.
  • Audit Results — measures relating to financial statements (such as the number and impact of restatements, and measures of financial reporting quality), internal control over financial reporting, going concern reporting, communications between auditors and audit committees, and enforcement and litigation.

The release asks whether in the case of certain audits, such as those performed on investment companies, the “nature, timing, and extent of audit work can differ from the norm and differ equally widely within the particular group of audits involved” such that the PCAOB should exclude these audits from the AQI requirements.

In the fourth quarter of this year, the PCAOB will convene a roundtable to discuss the AQIs. Comments on the release are due on September 28, 2015. The PCAOB also issued a fact sheet on the release.