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Audit Oversight – An International Perspective
Jan 16, 2017

This article is based on a presentation given by David Chitty, International Accounting & Audit Director of Crowe Horwath International given at Forum of Firms meeting with the Japanese audit profession in Tokyo, Japan on 13 January 2017.

Audit has been regulated at the nation state level, and there were many different approaches to regulation. Statutory regulation is increasing and collaboration between statutory regulators is increasing. Collaboration is coming about through mutual co-operation agreements (such as the US PCAOB and regulators in EU member states), regional arrangements (particularly in the EU) and through the International Forum of Independent Audit Regulators (IFIAR). As a result of collaborative measures and the sharing of practices, convergence in regulatory practice is clearly taking place.

IFIAR is a forum of independent audit regulators. It currently has members from 51 countries. The membership will increase as countries continue to implement independent regulation. IFIAR provides a platform for regulators to share knowledge and experience, it promotes collaboration and consistency in regulatory activity and it takes part in dialogue with other international organisations that have an interest in audit quality. IFIAR publishes an Annual Survey of Audit Inspection Findings that reports findings from its members’ monitoring activities. The trends reported by member seem to be common.

IFIAR’s 2015 survey of findings from the inspections of the six largest global network audit firms indicates that 43 per cent of inspected audits of listed public interest entities (PIEs) had at least one inspection finding during the survey period. The percentage of deficient audits has dropped, but IFIAR is not yet satisfied that the audit profession has done enough to understand and address shortfalls in audit quality. IFIAR observed that the outcomes continue to show a lack of consistency in the execution of high quality audits and highlight concerns over the robustness of the firms’ internal quality management systems.

IFIAR’s findings from their surveys are influencing audit standard setting. The surveys have revealed common deficiencies areas such as risk assessment, the audit of accounting estimates and in firm-wide quality control procedures. These are all areas that the International Audit & Assurance Standards Board (IAASB) is working on and new standards will appear in the coming years.

IFIAR and the six largest network firms have agreed on a new initiative to improve audit quality globally with the goal to reduce the number of deficient audits reported in the annual surveys. Targets have been set to reduce the number of deficiencies in audit inspection findings. IFIAR is particularly focusing on encouraging root cause analysis of inspection findings by audit firms along with intensive quality monitoring to show that deficiencies are being addressed. IFIAR is increasing its dialogue about audit quality with the networks’ international leadership.

Audit oversight in the European Union is a particular example of cross border collaboration between national oversight bodies. 2014 EU Audit Regulation & Directive has introduced measures including that are resulting in greater convergence of regulation and oversight. These include EU wide oversight of audit regulators and collaboration between audit regulators.

At European Union level a Committee of European Audit Oversight Bodies (CEAOB) has been formed to bring together national oversight bodies and provide effective co-ordination of audit supervision. The formation of CEAOB and the development of policies through CEAOB’s activities will result in the greater convergence of oversight activity in EU member states. In time, audit quality in member states will converge at consistent high levels.

The developments in the EU will increasingly influencing audit regulation and oversight in other countries. Countries outside the EU are considering implementing similar audit oversight legislation. CEAOB’s policy deliberations will influence audit standard setting and wider regulatory practice.

The work of IFIAR and the developments in the EU are both examples of collaboration between audit oversight bodies that is resulting in not only a convergence of regulatory activity, but also greater consistency in audit practice, and therefore overall higher global audit quality.