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IRBA’s Second AQI Report outlines actionable recommendations for audit quality

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Johannesburg, Tuesday, March 9, 2021 –  As part of its restoring confidence initiatives, the Independent Regulatory Board for Auditors (IRBA) embarked on a project to create a set of quantitative measures based on audit firm operations and the execution of independent external audit, against which firms can rate the firm’s audit quality and report this information to the IRBA. The IRBA was among the first audit regulators worldwide to agree and launch mandatory Audit Quality Indicators (AQI). 

Today, the IRBA has launched its second Audit Quality Indicators (AQIs) Report, placing critical actionable information in the hands of stakeholders. This report presents information that is relevant to those charged with governance (TCWG) such as audit committees, firm leadership, and the IRBA.

Says Acting CEO of IRBA, Imre Nagy: “As the regulator of registered auditors in South Africa, the IRBA is focused on driving significant improvements in audit quality through initiates such as these, involving broader stakeholders in the financial reporting system. In so doing through collaboration and cooperation, the financial interests of the investing public will be protected and confidence will be uplifted. The AQI survey report provides feedback on information which firms had reported to the regulator, as well as insights that are relevant to discussions and decisions on the appointment, performance, independence and reappointment of the auditor.”

This second AQIs Report continues to break ground by placing the IRBA at the forefront of driving initiatives aimed at promoting improved audit quality and accountability. Consequently, a number of other jurisdictions have shown a keen interest in this project and report and are embarking on similar projects.

AQIs refer to a portfolio of quantitative measures provided by an audit firm to an audit committee or other constituents of TCWG of their client, or future client, for use in transparency reports and for regulatory purposes. They cover the following thematic areas: independence; tenure; internal firm quality review processes; workload of partners and audit managers; span of control; technical resources; training; and staff turnover.

Says Nagy: “These indicators can be used to compare and benchmark current audit service offerings with other firms, and to set meaningful and relevant milestones for discussions around quality. If audit committees emphasise matters such as training hours, supervision, review time and experience in their interactions with their auditors, then auditors will respond appropriately.

“Therefore we encourage firms and users of audits to sharpen their collection and analysis of AQIs. A focus on this dashboard of indicators will help create a tool to enhance audit quality, thereby, ensuring better management of risks of audit failure and an enhancement of public confidence in the audit profession.”

This tool will be improved continuously as the profession and regulator embark on this journey together to optimise the use of AQIs and how to anticipate the consequences of measuring, reporting and monitoring these indicators. The IRBA also plans to conduct a separate user survey that will assist in refining the AQI process and reporting, and enhancing its usefulness to stakeholders including audit committees.