Audit quality indicators and transparent communication around those indicators could help assess the auditor’s work and drive audit quality, according to a Federation of European Accountants’ (FEE) discussion paper.
The paper, entitled Pursuing a Strategic Debate, is based on stakeholder responses to another FEE report published in 2014 Opening a Discussion: the Future of Audit and Assurance.
Most of FEE’s respondents agreed that, given quality is hard to define and measure, audit quality indicators could help those charged with corporate governance to assess auditors.
Making the indicators available in audit firm transparency reports could be seen as best practice in the long run, the report said. However, FEE noted this practice is already underway in some jurisdictions.
"There was consensus amongst respondents that professional judgement should be the bedrock of quality audit work", FEE’s report read. "It was recognised that too rigid an audit approach, with emphasis placed on formalisation of audit documentation instead of the application of judgement and professional scepticism, could detract the practitioner from the very purpose of the audit work."
FEE also relayed three main topics its respondents identified as critical to the future of audit and assurance: responding to stakeholders’ needs, encouraging innovation driven by technology and rethinking education to ensure the right skillset for the future.
"Continuous and structured dialogue with regulators and the public can help the accountancy profession address issues relating to the credibility," the report continued.
FEE specifically outlined the EU audit regulation requirement of transparency reports as increasingly useful in helping stakeholders assess the quality of a particular firm and as an example of good communication practice.
On areas where the auditor’s involvement could add value, some of FEE’s respondents suggested that auditors should expand their work to cover entity or sector-specific topics.
Moreover, the federation said SME’s provided an area of intense interest given they are the backbone of the European economy.
"The audit is still seen as a value-added service for SMEs," it read. "Consensus was reached among respondents that there were a number of alternative service offerings besides statutory audits which the accountancy profession could use to meet the current and future needs of SMEs."
However, there were differing opinions as to whether new assurance services should be developed or whether firms should focus on the current assurance offerings, FEE added.
An anonymous respondent to the discussion paper explained: "Increasingly, the profession needs to promote itself and its services.
This will involve: being more transparent as to what an audit involves, considering supplementary assurance services and, for those entities not subject to statutory audit, alternative assurance and related services to meet their individual needs."