What is a high quality audit?
Article written by Arta Limani, Senior Manager and Arian Meta, Manager of Deloitte Kosova, published by Amcham’s magazine HORIZON.
“Audit is about much more than just the numbers. It’s about attesting to accomplishments and challenges, and helping to assure strong foundations for future aspirations”
The purpose of the audit is to validate the confidence for the users of the financial statements. Audit shows where you stand and helps inform your next step. Audit core and enduring mandate is to attest that financial statements give a true and fair view in all material respects in accordance with the relevant financial reporting framework. The auditor is entirely independent from the contracting company to be audited. The users of the audited financial statements include creditors, shareholders and other stakeholders.
Years before, audit has been considered as a simple administrative procedure consisting mainly of verifying the accuracy of the accounting transactions reported in the audited financial statements.
As the world transforms, the role of auditors has never been more essential. Now auditors are to be considered as allies to shape the standards that will give comfort to stakeholders in so that they can build on a foundation of strength for the future, supporting smart, sure decision-making.
We understand that the greatest challenge for some stakeholders is to understand the importance of the quality of audit itself because the audit elements are often complex and difficult to be measured. Much of an audit relies on the audit process and the process can be anything but visible to the client and even more to the users of the financial statements.
According to the traditional point of view, the quality of audit is consistent across all audit firms, as audits are performed according to accepted audit standards. However, many subsequent studies and practices oppose the traditional point of view, showing that quality defines price as well.
Quality means a total commitment to making sound judgments. It means ensuring that all the right steps are taken consistently in the course of the Audit. It means providing a bedrock of confidence in the results verified. That is why quality performed audit helps clients to increase the reliability of the reported financial statements and consequently on the possibility of obtaining loans from the most prestigious lending institutions and attracting potential partners for joint investments.
The exact nature of high-quality audit varies essentially over time, into an evolving activity with the development of the daily business environment, financial reporting standards, auditing standards, regulations, and technology. This means that the pursuit of the quality of the audit is a never-ending quest and is not a fixed objective with a final result.
Indeed, the only visible signs of a potentially weak audit are the re-evaluations of the financial statements or the re-releases of opinions or even the specific investigations made by the regulators. Nonetheless, these processes can last for years and until then, they may have little to do with the current situation of the enterprise.
According to recent studies, although it is difficult to measure the quality of the audit, several factors determine or influence the quality of the audit. A relevant factor is the size of the professional audit firms; the larger the service company, the greater the quality is offered. Another adherent factor is the brand name of the firm; to strengthen more the brand name, audit firms bestow great importance to the quality of the audit. Another crucial factor for assessing the quality of the audit is the expertise of the audit firm in the specific industries, which is usually measured by the market participation.
Working with a prestigious and professional audit firm has a major advantage for the audited company. Exploiting a deep expertise of the brand audit firm on the relevant industry will help to create ever firmer foundations on which decisions can be based and future actions taken, adding deeper and more genuine value for stakeholders.
As a lack of auditor's experience and expertise, stakeholders might not get informed for the latest financial issues pertaining to the industry in which they operate. In addition, it is not because of negligence or lack of will, but merely because of the lack of experience, mechanisms and/or staff to deal with many industries and business trends.
In conclusion, the brand and reputation of the audit firm, the size of the audit firm, and its expertise in the industry are among the key factors that should be considered to ensure a high quality of the audit. However, all these qualities also have the respective price, which also makes the differentiation of auditors.