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Return to: Home > Comments > Industry comment: Can't we all just get along?

Industry comment: Can't we all just get along?

  • Author: Bob Dohrer is RSM's global leader for quality and risk
  • Published: 25 Sep 2012
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Working together to improve audit quality is essential. Rob Dohrer explains why

In today’s world, investors and regulators are rightfully clamouring for higher-quality audits of financial statements. Auditors want to deliver high- quality independent audits too. So, why is it so difficult to achieve the desired level of quality of audits to which we all agree?  Could it be that regulators and standard-setters themselves create an environment not conducive to optimum quality?

One aspect of increasing the quality of audits involves the use of clear standards against which to perform audits, as well as executing against those standards in a highly consistent and effective manner.  Perhaps one hindrance for global audit firms and networks is the myriad of regulatory requirements, as well as auditing and accounting standards that need to be dealt with across the world.

Let’s look first to the preparation of financial statements; the very first step in the production of high-quality financial information. What could be done to enhance the quality of financial statements? One set of high-quality, clear, globally accepted accounting standards would contribu greatly to the consistent production of high- quality financial information.

A global company has to reconcile and consolidate financial information from subsidiaries around the world, all of which are required to keep their original financial records in accordance with local accounting standards.  Whether the group financial statements are prepared in accordance with IFRS or with US GAAP for example, global companies need to expend significant resources on personnel who understand multiple variations in accounting requirements from jurisdiction to jurisdiction. This complexity introduces a higher likelihood of errors.

Next, let’s look at the link in the financial reporting supply chain the audit firms.  Audit firms have special challenges if their client base includes globally active clients. 

Audit firms need to possess the expertise necessary to execute high-quality audits of financial information reported in accordance with various financial reporting frameworks and audited in accordance with auditing standards in force in a multitude of different jurisdictions.

While ISAs provide a widely used base set of auditing standards, each local jurisdiction seems obliged to add their own unique additions and revisions to ISAs; only complicating matters further.  When auditors are required to understand so many different sets of standards and apply them in a variety of settings, errors occur and quality suffers.  So even though audit firms are committed to raising audit quality, the existing environment is not conducive to achieving this goal.

Finally, let’s turn to regulators and standard setters – can’t we all just get along?  Inconsistent performance and quality stems from needing to deal with requirements that are unnecessarily different depending on jurisdiction. Is protecting the investing public really of different importance depending on whether one is in Chicago, or London, or Vienna, or Singapore or Buenos Aires?

Until governments, standard setters and regulatory bodies can agree to uniform, clearly written, high-quality global accounting and auditing standards, the prospect for increasing audit quality by leaps and bounds is not good. 

Additionally, regulatory authorities around the world need uniformly and consistently interpret and enforce performance against these standards so that preparers and auditors of financial information are held to the same standard around the world.  So, while regulators consistently call loudly for increased audit quality and standard- setters defend their standards as being high- quality, perhaps an inward look by those bodies would be beneficial. 

While the large role that auditors have to play in improving audit quality certainly should not be minimised, all participants in the financial reporting supply chain have to come together to decrease the complexity of the audit environment.

Bob Dohrer is RSM’s global leader for quality and risk

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