We commend the FRC for these proposals, which elevate the audit landscape and will ensure Audit Committee Chairs and other interested parties have meaningful benchmark data to assess an audit firm’s quality management. We support the scope and range of Audit Quality Indicators (AQIs) proposed, which ACCA considers to be broadly consistent with ISQM (UK) 1.
We recognise there is a high degree of variation in AQIs adopted by other jurisdictions, with differing regulatory approaches to AQIs as a tool to promote audit quality; indeed, the definition of “audit quality” can vary considerably between countries. Wherever possible, these AQIs should
be consistent with the International Standards of Quality Management (ISQMs) issued by the International Auditing and Assurance Standards Board (IAASB) to ensure comparable and consistent decision-useful information for Audit Committee Chairs. The FRC has a unique opportunity to shape the future uptake and application of AQIs not just in the United Kingdom, but globally.
Our report Tenets of a quality audit found that auditors, by nature, are subject to a number of constraints and the tension between those constraints needs to be managed in achieving a high quality audit. AQIs, where sufficiently defined, provide relevant insight into how successfully an audit firm balances those constraints to drive audit quality, compared to its peers.
As noted in our response to the European Commission consultation on Strengthening corporate reporting and its enforcement, we find it useful to mandate specific indicators to measure the quality of statutory audit, in addition to specific indicators to measure corporate reporting and the effectiveness of supervision. We believe it is possible to have clear and reliable indicators that promote audit quality.
Ultimately, AQIs can give a good, but not absolute, indication of audit quality, as not all aspects of audit quality can be measured in quantitative terms.
We encourage the FRC to work in consort with the Department for Business, Energy & Industrial Strategy (BEIS) in determining the scope and extent of these AQIs. We note that BEIS will adopt a different definition of Public Interest Entities (PIEs) to the International Ethics Standards Board for Accountants (IESBA) and support the FRC in continuing to advocate for international consistency.
To read the response in full, please download the consultation PDF document.