Our audit quality report is our game plan for continuous improvement
I love college football. It’s a passion of mine, and our whole family enjoys going to and watching games. I enjoy football for many reasons, but mostly because it’s the ultimate team sport.?
Over the course of a long season, each and every part of a college football team is tested, and if there are weak spots, those are exposed. Year in and year out, the teams that are successful are those that invest in and dedicate themselves to being great at the basics and, at the same time, relentlessly commit to continuing to get better and to finding new ways to improve their performance.
Wins and losses may be the most common measure of success in the sports world, but win-loss records are wiped clean at the start of each season. As sports fans know, what’s most important is building a strong foundation for long-term success.
Like football, the audit profession uses statistics and data to measure our progress and help us build a winning game plan for the future. That’s why at Ernst & Young LLP (EY), audit quality is much more than a number or a single point in time. The ability to serve the public interest depends on consistent execution of the fundamentals, outstanding teamwork, and our ability to innovate and use technology to audit more effectively.?
Our 2021 audit quality report highlights our accomplishments, but more importantly, it provides an overview of the actions we are taking to continuously improve audit quality and maintain a strong foundation for the long game.??
Pursuit of quality starts with a continuous improvement mindset
Just as year-over-year improvement is critical in sports, a continuous improvement mindset is engrained in our audit practice. One measure we use to gauge progress is the annual Public Company Accounting Oversight Board (PCAOB) inspection results. The PCAOB’s 2020 inspection report of Ernst & Young LLP (EY US) highlighted a positive trend: fewer findings overall and a reduction in audits with multiple inspection findings. This shows us that our investments in audit quality are paying off. These investments include continuing to focus on enhancing our audit approach and prioritizing strong supervision and review of the audit.
Having a continuous improvement mindset means asking, “What can we do better?” So, as we celebrate our actions that have contributed to these positive results, we’re also using the findings from past and current PCAOB inspections, as well as insights from our Quality Network and our teams, to strengthen our system of quality control and drive further improvement in audit quality. ?Additionally, our Professional Practice group provides audit teams with materials to help them deliver high-quality audits and perform risk management activities.
We are also taking a long-range view on audit quality by:
Continuing to strengthen our bench?
Teaming plays an integral role in our culture at EY US.?We often call audit a “team sport” because of the importance we place on collaboration and shared accountability for the quality of our work and actions.
As in any team sport, everyone plays a critical role in our audits – from our seasoned partners, who set a clear tone from the top that executing high-quality audits is a key priority, to our most recent recruits. We take seriously the importance of creating an environment where all of our people understand how they contribute to audit quality and feel empowered to raise their hand.??
We also recognize the importance of the multidisciplinary firm. Football has its “special teams” — players like placekickers and punters with specific skills who are integral members of the team and are invaluable in certain situations. The same is true with our EY professionals who possess deep experience in tax, information technology (IT) and valuation matters, and in some cases forensic accounting. They are integral members of our audit teams; in fact, EY US specialists accounted for a total of 18.8% of our US public company audit hours in fiscal year 2021.
Our roster also includes professionals focused on climate change who can help us evaluate environmental, social and governance matters. Combining these professionals with our audit teams helps us deliver high-quality audits at a time when IT environments, business models, transactions, ?worldwide tax regimes and regulations are increasing in complexity.
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Broadening our talent base through diversity, equity and inclusion
Continuous improvement also demands that we are just as relentless in our efforts to improve diversity, equity and inclusion (DEI) on every audit team. Leveraging diverse perspectives spurs innovation and improves our ability to meet the demands of the companies we audit.
Our audit quality report illustrates many of the key improvements we’ve made in DEI. Some 56% of the audit partners and managing directors we recently promoted were women and racially and ethnically diverse (R&ED) individuals. Women and diverse partners are playing more prominent roles on our audit teams, including many of our most complex multinational audits. Other DEI efforts we’re proud of include:
Team-building efforts also included the recent launch of the EY Career Path Accelerator, a first-of-its-kind program to help eliminate barriers to entry and increase diversity in the accounting profession. This program gives students a chance to jump-start their careers by entering the accounting profession up to one year earlier, providing an accessible and affordable path for CPA licensure.?
And, as a member of the Center for Audit Quality, the EY organization is working to raise awareness and to continue to drive DEI in the accounting profession. Recently, the CAQ launched its “Bold Ambition” initiative, which consists of two main components: Accounting+, a multi-year initiative to increase the profession’s diverse talent pipeline, and a Bold Ambition website providing more transparency into the profession’s DEI efforts.
Maintaining our investment in audit technology and innovation?
Analytics plays an increasingly important role in sports, just as it does in business. Accurate data enables better decision-making, and our ongoing digital transformation has also contributed to high-quality audits. Taking a data-first approach significantly improves audit quality by helping our teams identify trends and anomalies, focus on key risks and spot new areas of concern, including potential fraud risks.?
For example, in our current audit cycle, 95% of our audit teams on US public company audits have deployed our digital audit methodology. This enables them to analyze data that encompasses a full population of a company’s transactions, which they then leverage to enhance their risk assessments.
The firm has a number of sector analyzers that were developed as custom solutions by EY auditors who wanted to address the needs of their own teams. These were tested centrally and certified for use by other US teams auditing companies in the same industry.
There is also a pipeline of ideas in development to create new tools; we encourage our professionals to innovate, and there is a process in place to govern and quickly certify simple tools our teams design for broader use.?
Our teams are able to benefit from artificial intelligence in a variety of ways, such as automatically extracting key terms from lease contracts. This helps them make more informed choices about which items to identify for further testing and verification. Additionally, the EY Explore & Visualizer allows users to access and visualize on-chain data for the entire history of a blockchain. It integrates search functionality with visualization technology to explore, track and analyze in-depth patterns and trends for on-chain data to improve management of legal, compliance and fraud risks.
Sustaining the focus on fundamentals??
There’s a saying in football that it all comes down to the blocking and tackling — the basics. And while technology will play an increasingly important role in future audits, we will continue to rely on the fundamentals of our profession — our time-honored principles of independence and professional skepticism — to guide our efforts to sustain audit quality.
As the year-end audit season progresses for many of our teams, we are continuing to see the impact of our investments in audit quality. While we’re proud of our accomplishments, we can’t rest on our laurels. We’re building the right game plan to produce high-quality audits, which promote trust and confidence in the capital markets, in a period of great uncertainty and increased audit complexity.
The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.