Regulating audit quality: Restoring trust and legitimacy

Due to recent corporate scandals and the global financial crisis many countries started
questioning the effectiveness of financial reporting and auditing. A response to this The
Financial Reporting Council tried to codify audit quality by issuing a discussion paper
Promoting Audit uality! "FRC# $%%&'. Previously no audit regulatory body has ever codified
audit quality.
Restoring trust in audit quality
(mpression management and legitimacy are of importance )hen it comes to debating about audit
quality. Auditing regulatory bodies and audit firms have an image sensitivity. They try their
utmost best to operate )ithin the bounds of the public*s e+pectations. the audit profession has
vested its interest in constantly convincing the users that auditors can be trusted. Auditing
regulatory bodies and audit firms are concerned )ith maintaining their image! and economic
position!.
The , main drivers of audit quality )hich )ere identified in this paper are-
.. The culture )ithin an audit firm/
$. The s0ills and personal qualities of audit partners and staff/
1. The effectiveness of the audit process/
,. The reliability and usefulness of audit reporting.
2ome other factors )hich )ere beyond the control of the auditors )ere also indentified.
The sample that has been used for the research about the paper of Audit uality Frame)or0
consists of-
.. Auditing firms/
$. Professional bodies/
1. (nvestors/
,. Corporations/
3. And other sta0eholders.
The main focus )as on auditing firms# professional bodies and investors.
The paper Promoting Audit uality identified t)o drivers of audit quality and those are the audit
firm*s culture and staffing. 2ome advantages and threats of these t)o drivers are mentioned on
page 33. Characteristics of useful and reliable audit reporting such as an audit opinion that
commands confidence and good communication )ith audit committees )ere also identified.
(t is very difficult to reach a common understanding of )hat audit quality is and to measure its
improvements in practice. The paper focuses on the regulation of audit quality )hich has been a
matter of concern and regulatory attention for some time. There have been numerous attempts to
improve audit quality over the years. The Panel on Audit 4ffectiveness# (CA45 and P67 all
issued different papers )hich all found different solutions in the effort to improve the audit
quality.
Conclusion
The Financial Reporting Council tried to codify audit quality by issuing a discussion paper
Audit uality Frame)or0! "FRC# $%%8'. This has never been done or has never been thought of
doing by other companies. This mar0ed a significant development in the 9.:.
The three groups "auditing firms# professional bodies and investors' of the discussion paper
Promoting Audit uality! "FRC# $%%&' all support the FRC*s approach# but its response )as
considered insufficient. This paper not only focused on issues that )ere identified by the FRC#
but also the underlying issues. (n an attempt to restore legitimacy and trust regulatory bodies
such as FRC have to reconcile )ith often comple+ demands of the sta0eholders.