Audit Quality: What are the weak links? 4th

Transcript:Audit Quality: What are the weak links? 4th:
Audit Quality: What are the weak links? 4th EIASM-BOCCONI WORKSHOP ON AUDIT QUALITY 27 September 2012* by Theodore J. Mock University of California, Riverside tmock@ucr.edu *Updated following Workshop. See notes for some additional explanation and comment Audit Quality [ AC ]: Some preliminary questions Is there a problem? Are there weak links in the chain of activities that produces a financial statement audit? And if so what are [is]: The weak links that sometimes break? The weakest Link? (What is a ‘weak link’?) The opportunities to strengthen these weak links? What does ‘practice’ and the press say? What does research say? What role can we [academics] play in strengthening the weak links? Is there a Problem? Audit Quality is not what it might be! Bad Grades are rising for Auditors**: Are audits getting worse? Or are the inspectors getting pickier? … “A Review of audits finds a decline in their quality” … 24 August 2012 ** “ the [PCAOB] Board cautions against extrapolating from the results … AIU Audit Quality summary http://youtu.be/kHn9CdCb-g4 Biggest audit firms hit by scathing regulator's verdict [22 Sept 2012 ?] What is a ‘weak link’ and what are some possible examples? Lack of Professional Skepticism Lack of Independence Lack of Expertise Excessive Legal liability Dysfunctional Regulation Inadequate Formal Education, Training and Continuing Education Please Complete the handout and respond to two Questions Q1: Given that there is evidence that audit quality is ‘less than ideal’, what do you believe is The Weakest Link in achieving an acceptable, if not ideal, level of audit quality? Please Respond to Question # 2 Q2: Given that audit quality knowledge, and thus the academic research that produces this knowledge, is incomplete with respect to our understanding of AQ, what is the weakest link, that is the main constraint, that limits our ability as academics to develop the AQ knowledge [research] that is needed? There are 6 categories and many audit variables that may affect AQ Other frameworks of audit variables that may affect AQ Compilation of Question #1 Weakest AQ link[s] as indicated by workshop participants [ N = 26 responses] Weak Links: Some other possibilities identified from professional sources Lack of fundamental professional scepticism …[UK FRC Audit Inspection Unit ] Frequent Audit Deficiencies* [PCAOB Inspections] 1. Failure to test issuer assumptions [ 20% Deficiencies] 2. Failure to test valuation or other models [16.2%] 3. Insufficient audit evidence [16.2%] 4.