The Importance of Planning and Time Management in Audit Quality

In the room today we have a diverse crowd from around the globe. I believe we all have something in common: that we care deeply about audit quality and are working to improve it. For a regulator, one of the best ways to improve audit quality is to think creatively and imaginatively with colleagues about what the fundamental issues are and how we can drive positive change in those areas and I am glad we are doing that at the PCAOB's International Institute.

In my work with the International Forum of Independent Auditor Regulators ("IFIAR") as the Chair of the Global Audit Quality ("GAQ") working group, I try to structure conversations with representatives of the six largest global audit networks on the audit quality issues on which we want those networks to focus. In addition to the United States, in the GAQ working group we also have representatives from Australia, Canada, France, Germany, Japan, Netherlands, Singapore and the United Kingdom and the diversity of inputs leads to rich multi-dimensional conversations with the networks.

Most very large companies today are global enterprises, and the audit firms that perform their audits are part of global audit networks. Yet we regulate each of the affiliates of these global networks only in our own local jurisdictions. The global audit network coordinating entities themselves, where the global firm leadership is housed, are not subject to regulation by any national regulator. That is why it is so important that we meet through bodies like IFIAR and its GAQ Working Group with the leadership of those global audit network entities to express the views of a number of national regulators in a collective setting.

The global audit networks are coordinated in their efforts, and we should also have a certain level of information sharing and coordination for our oversight. I also believe that when the global leadership of the larger audit networks meet with senior representatives of nine regulators in one room, face to face, they are aware that what they say will have a global impact, and there can be no arbitrage among us.

In our next GAQ working group discussion with the global audit networks, which will take place in February in Frankfurt, we plan to address project management and the audit quality indicators that firms are looking at in the context of managing audits. I have observed here at the PCAOB that often in our inspections and enforcement matters we see patterns around quality issues arising from lack of proper time management and planning in the audit.

When the auditor learns of a critical fact in the days before the audit report is finalized, sometimes he or she may seem to suspend professional skepticism in light of time pressure. I have even heard it said that professional skepticism may be inversely related to the time remaining for the audit to be performed. When an auditor improperly concludes that an area is low risk, that auditor may not expend sufficient audit effort in an area that needs greater attention to comply with standards.

The global network firms are telling us that they are seeing the same trends. As Helen Munter, our head of inspections recently said, in audits where the planning and risk assessment is done correctly and the audit is properly managed throughout, there are less likely to be other quality issues.

As regulators, we should be asking firms to ensure that audits are appropriately staffed and overseen by engagement and reviewing partners with appropriate consultation with technical experts to allow for planning and to make sure that auditors can move the audit forward on a timely basis.

I encourage you to talk with firms about how they are tracking and monitoring the timeliness of their work on audits. There should also be time for adequate supervision, including participation of experienced team members in the planning oversight and quality review of the audit. Finally, firms should have the resource bandwidth, and appropriate mechanisms, to deal with last minute crises and unexpected events in the busiest phases of the audit.

Now that a clear correlation has been identified between careful audit planning and timing and higher quality audits, I hope we can all focus our regulatory efforts on steps to achieve improvements in this area. I am interested in hearing from my colleagues in the GAQ working group about their experience in this area when we meet in February, and I am interested in learning what all of you here this week think about this topic.

I encourage all of you in your regulatory programs to follow what the firms are doing to manage the planning and phasing of their audits. I hope as my work with the GAQ working group progresses, I will be able to share more both within IFIAR and with other groups such as this Institute about these conversations.