We believe an effective system of quality control (SQC) is crucial for the consistent performance of high-quality audit and assurance engagements, and we continue to make significant investments in the people, processes, and technologies that underline Deloitte’s SQC. Our SQC includes numerous elements, such as documenting key areas of the SQC processes and controls and performing procedures for testing the operating effectiveness of the SQC, including execution of a comprehensive SQC review program.

Used in conjunction with other metrics, Audit Quality Indicators (AQIs) further assist in developing and monitoring audit quality action plans and reporting on the progress of our audit quality journey. AQIs are integrated with ongoing Quality & Professional Practice Network monitoring activities.

In addition, proper timing and sequencing of audit activities, including timely reviews of work performed and the resolution of matters identified, are closely associated with high-quality audits. Audit quality milestones are established centrally to drive consistency of engagement teams in project management; timing of when work is done; and necessary focus on engagement staffing, including the sufficiency and skills, knowledge, and experience of assigned resources.

Regulators and standard setters in the United States and globally are focused on driving further improvements in firms' system of quality control. In November 2022, the Public Company Accounting Oversight Board (PCAOB) proposed a new standard that provides a framework for a firm's quality control system. In December 2020, the International Auditing and Assurance Standards Board released its revised suite of quality management standards, including International Standard on Quality Management 1 (“ISQM 1”). Effective December 15, 2022, ISQM 1 focuses on quality management at the firm level.

We are completing the implementation of ISQM 1, which will further enhance our proactive approach to managing the quality of engagements performed—identifying and addressing risks to audit quality and driving continued advancements in quality control processes.

We are utilizing a new technology platform to facilitate our ISQM 1 implementation and ongoing monitoring. This technology platform allows us to efficiently manage data across our SQC, enable identification of components of ISQM 1 where enhancements can be made, and allow for self-reporting of significant changes or findings, if any, in the design or operation of our SQC.

Audit process

Our approach to a high-quality audit is underpinned by professional standards, and it combines qualified people, consistent processes, and innovative technologies. This includes our next-generation cloud-based audit delivery platform Omnia, which enables a differentiated, digital audit experience and integrates cognitive technologies, automated workflows, and advanced data analytics for a more streamlined and insightful audit.

Our audit process is dynamic; it is ever-evolving to keep pace with the changing demands of companies, investors, and other stakeholders. It recognizes that advances in the availability and management of large data sets and in statistical science are relevant to continuing to enhance the quality of our audits. It is fueled by innovation, as our investments in cloud technology and digital solutions are bringing artificial intelligence, automated workflow processes, and advanced analytics into the audit.

Our audit methodology is risk-based and adaptable, focused on what matters most. During the planning phase of the audit, we focus on the company’s business operations (including the financial reporting and internal control structures) and identify risks through consideration of changes in the industry, business, control environment, company personnel, complexity factors, and regulatory environment and then tailor the audit to respond to such risks. As an iterative process, we reevaluate risks of material misstatement throughout the audit and revise our audit plan as needed.

Monitoring our business for continuous improvement

Our dedication to delivering high-quality audits requires us to develop techniques to centrally monitor the progress of audits on a real-time basis, effectively analyze results, and understand the causal factors related to audit deficiencies identified through practice reviews and PCAOB inspections and be rigorous in our evaluation of both financial statement and internal control report restatements.

We have implemented quality monitoring programs with oversight by various groups within the Network focused on the performance of engagements in progress to assess the implementation of our quality priorities. These programs are designed to provide feedback to engagement teams, which can be incorporated into the audit prior to the issuance of the opinion. These programs also help inform whether the actions taken continuously improve audit quality are having the intended effect, or whether we need further actions, such as communications, training, or changes to our methodology, guidance, or tools. We leverage information obtained from our Assurance Insight & Analysis group and in-flight monitoring programs to continuously monitor audit quality and identify issues for timely resolution.

We serve as our own critic, and our practice reviews and monitoring processes aim to swiftly identify and course-correct practice deficiencies. Each year, we reassess the scope and focus of our quality monitoring programs based on feedback from our practice review and external inspection results and in response to enhancements to our audit approach and methodology, including from the adoption of new audit and accounting standards. Our monitoring programs are critical to achieving our continuous improvement objectives and enable us to ascertain the effectiveness of the actions we take to enhance audit quality.

In-flight monitoring

Monitoring of a sample of engagements “in-flight” provides timely visibility into the effectiveness of updates or changes to the audit methodology and tools resulting from new standards or in response to feedback from internal and external monitoring activities. In-flight monitoring results are evaluated overall to determine whether additional communication and support to the Audit & Assurance business is needed with respect to adherence to the updates or changes to the audit methodology.

Practice review

We perform approximately 200 inspections of completed audits annually in addition to procedures designed to test compliance with our policies.

External Inspections

Regulatory inspections and outside perspectives are also critical to raising standards and achieving quality outcomes. We value the feedback received through the external inspection process, including peer reviews, and utilize input from various sources to continually improve the quality of our audits.

Public portion of PCAOB inspection reports (Part I)

For SEC issuer engagements, the PCAOB performs rigorous inspections of public company audits. PCAOB inspections of audit engagements can result in observations that are made public through:

• Part I.A—Deficiencies that are of such significance that it was determined that the firm had not obtained sufficient appropriate audit evidence to support the audit opinion(s) on the issuer’s financial statements and/or internal control over financial reporting; and
• Part I.B—Deficiencies that do not relate directly to the sufficiency or appropriateness of evidence the firm obtained to support its opinion(s) but nevertheless relate to instances of non-compliance with PCAOB standards or rules.

Non-public portion of PCAOB inspection reports (Part II)

While we are proud of our most recent PCAOB inspection results, we are focused on continuous improvement. We carefully analyze inspection themes, identify causal factors, and design responsive remedial actions to PCAOB findings. Under the Sarbanes-Oxley Act of 2002, quality control criticisms contained in Part II of PCAOB inspection reports are publicly released only if the PCAOB determines that satisfactory remedial actions have not been taken within 12 months of the report’s issuance. Once the PCAOB determines that remediation activities have addressed quality control deficiencies cited in that year’s inspection report, or determines that portions will be publicly released because certain matters have not been addressed to its satisfaction, that inspection year is “closed.”

In January 2023, in closing our PCAOB 2018 inspection report, the Board determined that the remedial actions we took in response to one or more of the quality control observations in Part II of that report had been addressed to their satisfaction. However, the Board also determined that the remedial actions we took to address a finding related to instances of incomplete reporting of personal financial holdings in our platform that tracks and monitors the personal investments and financial relationships of partners, principals, managing directors, professionals and their immediate family members resulting in violations of firm policy were not sufficient, and the Board made that quality control criticism public.

We are intensely focused on strengthening and improving the timely and accurate reporting of personal financial holdings disclosures and all other quality matters that we observe in our internal reviews and that the PCAOB raises in its inspection reports.

Our remediation responses to Part II of the 2019 and 2020 inspection reports have been submitted and the PCAOB is currently reviewing the remediation responses.

Peer review

For non-SEC issuer engagements, the AICPA triennial peer review process is conducted to provide reasonable assurance that Deloitte’s quality control systems are appropriately designed and in compliance with applicable professional standards. On our most recent peer review completed in 2020 we received a pass rating. Our next peer review will be in 2023.

Continuous improvement

We have a relentless focus on professional excellence and continuous improvement and, therefore, we take all inspection observations very seriously. In addition to holding our professionals accountable for inspection findings, we as a firm seize opportunities to enhance the quality of our audits and have taken the constructive feedback from past inspections to make changes that are yielding desired improvements in audit quality. We analyze and perform remedial procedures relative to each written inspection comment received. In addition, we perform analyses to identify the causal factors behind our positive inspection outcomes and written inspection comments, and we develop action plans accordingly to continuously enhance audit quality. Furthermore, we assess whether corrective actions to our SQC may also be appropriate and, if so, such actions are designed, implemented, and monitored.