Audit quality
In our view, audit quality refers to any matters that impact on the likelihood of achieving the fundamental objective of the audit, which is to obtain reasonable assurance that material misstatements in the overall financial report are detected and ensuring that any misstatements are addressed. The findings show that more needs to be done to improve audit quality.
Audit firms have the primary responsibility for audit quality. Audit firms should consider ways to further improve audit quality and significantly reduce the number of instances where this assurance is not obtained.
ASIC will work with firms and the audit profession more generally on how they can improve audit quality. We will monitor the implementation and execution of any plans to improve audit quality and their effectiveness.
The ASIC report outlines good practices adopted by auditors and other matters for consideration by firms to promote improved audit quality.
Better auditors appropriately balance commercial pressures with risks and maintaining audit quality. They ensure that they understand the audited entity’s business model, its internal and external risks and how these factors affect the nature and extent of audit procedures.
Focus areas
The report also contains specific focus areas for firms. In addition to the three areas mentioned, these include:
- focus areas from ASIC’s financial reporting surveillance media releases
- maintaining audit quality where there have been large fee reductions
- ensuring audit efficiency measures do not lead to audit quality being compromised on individual engagements
- an understanding of the business model and assessing risks for audited entities
- supervision and review at all stages of the audit
- auditor independence
- the adequacy and timeliness of reporting suspected contraventions under s.311 and s.601HG of the Corporations Act to ASIC, reporting under s.990K and reporting under the national credit legislation.
Other activities
Other ASIC activities include the financial reporting surveillance program, auditor surveillances, investigations into corporate collapses and addressing matters stemming from complaints and other intelligence. The public audit inspection reports do not include matters arising from these other activities.
Further information can be found in the ASIC report at asic.gov.au.
