Posts Tagged ‘IFAC

04
Mar
14

Audit quality and the IAASB Framework

 

Recently, the International Auditing and Assurance Standards Board (IAASB) has released its “Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality” (the Framework) describing the factors that it thinks are essential to maintain audit quality at all levels of auditing profession. Though the framework is aimed at external auditing profession, it has some great takeaways for the profession of internal auditing too. In fact, many indicators and factors remind us of the various provisions from the Institute of Internal Auditors’ (IIA) International Professional Practices Framework (IPPF).

 

I believe that if the Chief Audit Executives (CAEs) of various internal audit functions are able to focus and achieve these indicators, it will go a long way in ensuring the audit quality of assignments they undertake on a consistent basis. Though the Framework is very broad in its content, I would like to focus specifically on some of the ideas promulgated under input and process factors that contribute to achieving audit quality and customize them to the internal auditing profession in this post.

 

A quality audit is likely to have been achieved by an internal audit team that: [1]   Exhibited appropriate values, ethics and attitudes; (Input factor)  [2]   Was sufficiently knowledgeable, skilled, and experienced and had sufficient time allocated to perform the audit work; (Input factor) [3]   Applied a rigorous audit process and quality control procedures that complied with law, regulation and applicable standards; (Process factor) [4]   Provided useful and timely reports; and [5]   Interacted appropriately with relevant stakeholders.

 

I. Key attributes of ‘Values, ethics and attitudes’:

  • The internal auditor exhibits objectivity and integrity;
  • The internal auditor exhibits professional competence and due care;
  • The internal auditor exhibits professional skepticism; (Professional skepticism is an attitude that includes the application of a questioning mindset in the context of an appropriate understanding of the entity, its business and the environment in which it operates. It is an important aspect of internal auditor judgment related to planning, performing and evaluating the results of an internal audit. It involves all the team members [a] having a questioning mindset and a willingness to challenge management assertions; [b] assessing critically the information and explanations obtained in the course of their work; [c] seeking to understand management motivations for possible misstatements/ fraudulent activities; [d] keeping an open mind; [e] challenging the judgments of other members of the team; [f] having the confidence to challenge management and the persistence to follow things through to a conclusion; and [g] being alert for evidence that is inconsistent with other evidence obtained or calls into question the reliability of documents and responses to inquiries.)
  • The internal audit function is independent;
  • The internal audit function promotes a culture of consultation on difficult issues; (Since internal auditing often requires difficult decisions and judgments to be made, it is crucial for internal audit functions to promote a culture of consultation both within the team and with technical specialists wherever necessary. This would go a long way in enhancing the credibility by mitigating the risk of making mistakes while arriving at difficult decisions and judgments.)
  • Necessary personal characteristics are promoted through appraisal and reward systems supporting audit quality;
  • The internal audit function emphasizes the importance of providing its members with continuing professional development opportunities and access to high-quality technical support.

 

II. Key attributes of ‘Knowledge, Skills, Experience and Time’:

  • Each internal audit team member have the necessary competences;
  • Internal auditors understand the entity’s business;
  • Internal auditors make reasonable judgments;
  • The audit supervisor is actively involved in risk assessment, planning, supervising, directing and reviewing the work performed;
  • Internal auditors have sufficient time to undertake the audit in an effective manner;
  • Internal audit teams are properly structured;
  • CAE and audit supervisors provide less experienced auditors with timely appraisals, appropriate coaching and “on-the-job” training.

 

III. Key attributes of ‘Audit Process and Quality Control Procedures’:

  • The internal audit team complies with internal auditing standards, relevant laws and regulations, and its quality control procedures;
  • The internal audit team makes appropriate use of information technology;
  • There is effective interaction with second line of defense (so that there is no overlap of work);
  • There are appropriate arrangements with management so as to achieve an effective and efficient audit process;
  • The internal audit methodology is adapted to developments in professional standards and to findings from internal and external quality assurance reviews and appropriate consequential action is taken from such reviews;
  • The methodology requires effective supervision and review of audit work;
  • The methodology requires appropriate audit documentation;
  • Where required, effective external quality assurance reviews are undertaken.

 

Though these factors and indicators identified in the framework are not new to the internal auditing profession, they act as a timely reminder to us in the journey of achieving and maintaining our audit quality.

 

Reference:

 “A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality”, The International Auditing and Assurance Standards Board (IAASB), The International Federation of Accountants (IFAC), February 2014.




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