Public company auditors perform thousands of audits each year. These audits promote investor confidence in the public company financial reporting that underpins our capital markets.
To continually improve audit quality, firms develop and deploy robust audit quality measures and many firms describe such efforts in annual voluntary audit quality reports.
The CAQ spoke with the assurance leaders of two of its member firms that released audit quality reports in late 2021 to learn more about their efforts, particularly in the areas of technology, environmental, social and governance (ESG) matters, diversity and inclusion and PCAOB inspections.
Firms are increasingly using technology to transform the audit process.
At Ernst & Young LLP (EY), 95% of audit teams on U.S. public company audits fully implemented the firm’s digital audit methodology in the most recent audit cycle. That means they analyzed full populations of data to assess risks and identify items for testing.
“Technology is helping to foster innovation and maintain high audit quality and in fiscal 2021 we significantly expanded our data-first approach,” said John King, US Vice Chair – Assurance, Ernst & Young LLP. “In our current audit cycle, we’re fully implementing our digital audit methodology and we’re also using data and analytics to manage risks firm-wide and strengthen our system of quality control. We are also investing in our teams. Empowering them with the right skills and the right support to deliver high-quality audits.”
PwC’s 2021 audit quality report highlighted a people-led approach to audit quality enhanced by technology. During FY21, their audit professionals completed more than 50,000 hours of training to maintain their digital skills.
“It’s about the right combination of people and technology,” said Kazi Islam, Assurance Strategy Leader at PwC US. “Neither can be overlooked.”
Diversity, Equity & Inclusion
Public company audit firms also see diversity and inclusion as critical to their ability to perform high- quality audits. In both their audit quality reports, EY and PwC highlighted their efforts to increase diversity and inclusion within their workforce and talent pipelines. Both firms also significantly increased diversity within their leadership:
- In its audit quality report, PwC highlighted that 41% of current audit partners are women or racially and ethnically diverse individuals.
- At EY, 56% of the audit partners and managing directors recently promoted were women and racially and ethnically diverse individuals.
Demand for ESG
In 2021, public company audit firms actively engaged with regulators, standard setters and other stakeholders for corporate reporting on ESG matters. This included sharing perspectives with policymakers and others and considering how the profession might provide assurance on any new disclosures the Securities and Exchange Commission (SEC) may require public companies to make.
Inspection Report Findings
Firm investments are not the only indicators of a strong commitment to audit quality. The most recent inspection reports issued by the Public Company Accounting Oversight Board (PCAOB) also demonstrate that audit quality is improving.
Of the US member firms of the six top global networks inspected in 2020, most firms saw a decrease in overall deficiencies compared with 2019 inspections, and there were no restatements as a result of inspections.
“We are very proud of our 2021 inspection results but we also view them with a high degree of humility and sensibility,” said Islam. “We realize that audit quality is not a snapshot in time but rather a journey.”
King said the PCAOB inspection process provides “valuable information we use to drive continuous improvement in our audit approach and to strengthen our system of quality control.”
PwC and EY are committed to continuing to disclose their efforts and share their key learnings in audit quality, technology, DEI and more for all relevant stakeholders who can benefit from this information.
Looking ahead, the public company auditing profession remains committed to maintaining its strides in audit quality, leveraging the latest technology, training, and other capabilities at every stage of the audit process as well as working with the PCAOB.
Read the EY 2021 audit quality report here and PwC’s full 2021 audit quality report here.