A handful of major audit firms have begun producing voluntary reports explaining what they are doing to try to improve audit quality, prompting the Center for Audit Quality to offer suggestions for such reporting.

Deloitte has published various reports from different jurisdictions over the past few years, including U.S.-based reports that explain how the firm manages its audit business to pursue quality auditing. A July 2012 “transparency report” covers audit quality from every possible angle -- the firm's responsibility to deliver it, commitment to pursue it, investments to achieve it, as well as frank discussion of inspection results revealing audit failures. The report explains how the firm manages, compensates, and trains its people, and how the firm is structured legally.

Similarly, PwC published an October 2012 report addressing a variety of audit quality issues, including its own quality principles and practices, how it promotes audit quality internally, and assessments of its quality with discussion of internal and external inspection results. Crowe Horwath published a smaller “transparency report” not focused exclusively on audit quality but explaining its legal structure and governance practices.

The CAQ has taken an interest in such voluntary reporting and is offering some ideas for the firms to consider to create more standardized reports that would be more consistent across the profession, says Executive Director Cindy Fornelli. “We applaud those firms that issue audit quality reports in whatever form they take,” she says. “As we've seen more of those over the last couple of years, we notice some common areas that the reports seem to cover, so we wanted to highlight those for other firms to consider.”

The CAQ published a brief “Resource on Audit Quality Reporting” intended to highlight elements of audit quality that U.S. audit firms could consider in refining or developing their own reporting regarding their public company audit practice. Those elements include firm leadership and tone at the top; independence, objectivity, and skepticism; audit process, methodology, and performance; professional development and competency; monitoring; and firm organization and structure. Fornelli says the resource not meant to include all possible topics that firms could address in such reports, nor to suggest all elements in the resource be addressed in all reports. 

Fornelli says the CAQ believes audit quality reporting is a positive step in fostering greater confidence in the audit process by giving audit stakeholders an understanding of how the firms operate and how they pursue quality auditing. The CAQ published the resource and put a spotlight on audit quality reporting just as the Public Company Accounting Oversight Board has published a proposal on how to overhaul audit reports, which includes new requirements intended to give audit stakeholders more information about how auditors operate. Fornelli says a focus on voluntary audit quality reporting should be seen as an example of what firms do or could do to increase transparency.

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