Audit quality indicators could help audit committees make better choices.
With each new fraud and “audit failure” divulged in the financial press, more pointed questions are being raised about audit quality. What is it? How do you define and measure it? And, how can audit committees obtain a better understanding of an audit firm’s quality? While “audit quality” is a key concept supporting the reliability of financial reporting, this concept is neither well defined nor well understood.
A public company’s audit committee shares the responsibility for audit quality, through its responsibility to select, compensate, oversee, and evaluate the company’s independent auditor. Certainly, audit committees routinely obtain some information on indicators of quality from audit firms during the process of appointing or retaining their external auditors. However, the extent to which this information is actually sought and used in the appointment process for new and continuing auditors is unknown.
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