Monitoring audit quality
The IAASB framework recognises there is a complex interplay of many factors in audit quality, and notes the need for a rounded approach.
We have taken the attributes that IAASB Framework expects to be present within a quality audit and distilled them into three tests which we will use to consider the quality of audit services provided by auditors under our contracts:
- adherence to professional standards and guidance;
- compliance with contractual requirements; and
- relationship management.
This approach will enable PSAA to meet the statutory requirement to monitor compliance with contractual obligations, and will provide information for all stakeholders on the quality of audits provided under our contracts against IAASB expectations of a quality audit. We have set out below the sources we will use to monitor audit quality for the three tests to provide a rounded view.
The diagram at Annex A provides an overview of our approach.
Adherence to professional standards and guidance
Information on the firms’ adherence to professional standards and guidance will come from the results of professional regulatory reviews completed by the Audit Quality Review Team (AQRT) for the Financial Reporting Council and the Quality Assurance Department (QAD) for the Institute of Chartered Accountants in England and Wales, the principal RSB for local audits in England. The regulators will be reviewing a sample of local audits. PSAA will be informed by but will not be duplicating the work of the regulators.
We will triangulate these results with information on audit quality provided by firms in their transparency reports and from their own internal quality monitoring reviews (iQMRs).
Compliance with contractual requirements
Information on a firm’s compliance with contractual requirements will come from:
- An assessment against a suite of performance indicators. We will report publicly on firms’ performance against targets of particular interest to opted-in bodies. This will include information on delivery of audit opinions and other outputs in a timely manner, to facilitate publication of annual accounts. We will distinguish between those items which are indicative of audit quality and the work of the firm (for example non-compliance with PSAA Terms of Appointment) and those which relate to the local authority financial reporting supply chain as a whole (for example issue of opinion on financial statements by statutory publishing date).
- An assessment of a firm’s compliance with its agreed method statement. The method statement is taken from the firm’s ITT response and incorporated in the contract, and includes inter alia continuing professional development of staff, quality assurance arrangements, and achievement of social value commitments. Firms will self-certify their compliance. We intend to rely on a firm’s internal control procedures for providing this information. This will be subject to PSAA verification testing and triangulated with audit quality information from other sources e.g. surveys of audited bodies.
Relationship Management
Information on a firm’s relationship management will come from satisfaction surveys. Surveys will be sent at appropriate times to representatives of both management (for example the Director of Finance) and those charged with governance (for example the Audit Committee Chair) for each opted-in body. Any complaints made will also be assessed in considering overall relationship management.