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Audit Quality

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● Audit Quality Indicators (AQIs)
To enhance the audit quality of financial reporting, the FSC released “the AQIs Disclosure Framework”, which provides a comprehensive and comparable set of quantitative audit quality indicators. The AQIs have 13 indicators, which cover five scopes-profession, independence, quality control, monitor and creativity. They serve as a useful toolkit to assist companies and audit committees (ACs) in assessing the quality of audit firms and auditors more effectively and objectively and will bring the audit quality and corporate governance to a new level. Besides, to improve the consistency and comparability of the AQI among firms, the FSC released “the AQI Disclosure Template”, which specifies the content and form of AQIs. The template also provides industries average and range data with some AQIs such as audit input and external inspection for companies to make comparisons so as to gain further insight on the dynamics of audit quality of firms and to detect the difference among them.    

The FSC promotes the AQI initiative by a two stage approach:
I.  Stage one: listed companies would get AQI information from CPAs for reference starting from the time of appointing CPAs for the audit of 2023 financial reporting. 
In the early stage, this initiative will apply to Big Four CPA firms. The FSC has reached a consensus with the Big Four that they will voluntarily provide the AQI information to listed companies’ audit committees for reference annually.
The FSC encourages listed companies to make a thorough assessment on their annual CPA appointment based on the AQI information and to have sufficient discussion with current or potential CPAs.  
II.  Stage two: from 2023 the FSC will review the result of the implementation for the Big Four and listed companies to look into the possibility of extending application to non-Big Four and other public companies. 
The FSC reminds audit firms and CPAs to review “the AQI Disclosure Framework and Template” and to prepare AQI information including the data of comparison period in advance. The FSC will keep the dialogue with CPAs and will release guidance to clarify the content and usage of AQI to assist firms to prepare and ACs to interpret the AQI information correctly.

Attachment:
    The AQIs Disclosure Framework(PDF)
    The AQIs Disclosure Template(PDF)

● Transparency Report
The provision of audit services for public companies has profound implications for public interest. To help the public gain a better understanding on the operation, governance, and the internal control of audit firms, the FSC released “Principles for Preparation of Transparency Reports by Audit Firms(The Principles thereafter)”, hoping that the enhancement of transparency of audit firms would promote healthy competition so as to raise overall audit quality.   
The content of the transparency report shall include the overview, legal and governance structure, risk management and quality control, audit quality indicators and also financial and operational information of audit firms. The transparency report should be fact-based, not misleading and not oriented toward marketing or selling service. In addition, to help the public learn more about whether joining global networks would foster the audit quality of the audit firm and whether a multidisciplinary model would have effect on the audit firm’s culture of dedication towards audit quality. Where the audit firm is a member of a network, it shall further disclose the risk management, quality control and support received from the network. Also it should further disclose the details about its affiliated entities, which include subsidiaries and associates, such as the name, the business overview and the proportion of Non-Audit Services (NAS) of affiliated entities.    
Public companies can refer to the transparency report published voluntarily by audit firms to assess the governance and audit quality of the audit firms so as to appoint suitable audit firms or CPAs.
The FSC draws on the experience around the world, taking a two-stage approach to implement this policy:    
I. Stage One: Big Four audit firms will make public their first copies of transparency reports from 2023. Big Four audit firms will be the first movers. Big Four audit firms has reached a consensus with the FSC to prepare the transparency report in accordance with The Principles and to make them public within four months after the end of each financial year on their websites.  
II. Stage Two: from 2023 the FSC will review the result of the implementation for the Big Four audit firms to look into the possibility of extending application to non-Big Four audit firms.  
The Principles are published in the audit quality section of the FSC’s website. The FSC reminds audit firms to review The Principles and be prepared for related information required in the report, encouraging small and medium-sized audit firms to voluntarily publish the transparency report earlier in stage one. 

Attachment:
    Principles for Preparation of Transparency Reports by Audit Firms(PDF)
Visitor: 406   Update: 2022-01-19
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