Fact Sheet: Concept Release on Audit Quality Indicators

The Public Company Accounting Oversight Board is issuing today's concept release to seek public comment on the content and possible uses of a group of potential audit quality indicators (AQIs), a portfolio of quantitative measures that may provide new insights about how to evaluate the quality of audits and how high quality audits are achieved.

AQIs may inform discussions among those concerned with the financial reporting and auditing process, for example among audit committees and audit firms. Enhanced discussions, in turn, may strengthen audit planning, execution, and communication and could improve audits and stimulate competition among audit firms based on the quality of work.

The PCAOB has identified 28 potential indicators and is seeking comment on their content and their potential value to audit committees, audit firms, investors, and regulators. In addition, the Board welcomes suggestions for additional AQIs not mentioned in the release.

To further support the comment process, the PCAOB will convene a public roundtable in the fourth quarter of 2015 to allow for further discussion of the topic. Additional details about the roundtable will be forthcoming.

Audit Quality Indicators the PCAOB Has Identified

A total of 28 potential AQIs have been identified in the concept release in the following areas:

  • Audit Professionals
    • Availability
    • Competence
    • Focus (Example AQI: The allocation of audit hours to phases of the audit)
  • Audit Process — An audit firm's
    • Tone at the top and leadership
    • Incentives
    • Independence
    • Infrastructure
    • Record of monitoring and remediation (Example AQI: Audit firms' internal quality review results)
  • Audit Results
    • Financial statements (Example AQI: Frequency and impact of financial restatements)
    • Internal control
    • Going concern reporting
    • Communications between auditors and audit committees
    • Enforcement and litigation

The Board hopes ultimately to refine the list to a smaller number that is manageable and effective.

Use and Availability of AQIs

In addition to the content of the AQIs, the concept release explores potential uses of AQI data. The PCAOB is asking for comment on AQIs' potential availability and value to:

  • Audit Committees
  • Audit Firms
  • Investors
  • The PCAOB (and other regulators)

Other users of AQIs could include company management, the business press, academics, and the general public.

The concept release also considers how AQI data might be obtained and distributed, whether use of AQIs should be voluntary or mandatory, the scope of audits and audit firms that may be subject to AQI reporting, and the possibility of phasing-in steps toward AQI reporting and use.

The Board believes that the promise of AQIs, in generating insights into the foundations of audit quality, both within and among audit firms, and in creating incentives for competition in quality, is considerable. Still, the PCAOB recognizes that at this stage the AQI project poses many questions, from the appropriateness or operation of particular proposed indicators to the way the information they generate might be obtained and used. The concept release is intended to stimulate informed discussion and elicit detailed comments and suggestions from all interested parties about the answers to these questions.

AQI Project Details and Background

· In October 2008, the U.S. Treasury Department's Final Report of the Advisory Committee on the Auditing Profession recommended that the PCAOB, in consultation with other parties, "determine the feasibility of developing key indicators of audit quality and effectiveness and requiring auditing firms to publicly disclose these indicators."

  • The PCAOB prioritized the AQI Project in 2013 as indicated in the Board's Strategic Plan for 2012-2016.
  • Staff of the Office of Research and Analysis presented a working paper on Audit Quality Indicators to the Standing Advisory Group meeting on May 15, 2013.
  • AQIs have been the subject of Investor Advisory Group meetings as well as the Standing Advisory Group.

Important Upcoming Dates

  • Written comments due by September 28, 2015
  • Public roundtable with comment presentations in the fourth quarter of 2015; details forthcoming.