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The FSC Released “the AQI Disclosure Framework and Template” to Enhance Audit Quality and Transparency

As the adoption of Audit Quality Indicators (AQIs) has become a global trend, 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. 
The transparency and reliability of financial information is the foundation of sound capital markets; hence the importance of audit quality of financial reports is beyond doubt. In addition to CPA’s self-discipline and regulator’s oversight, the companies which appoint auditors also play a vital role in enhancing audit quality. To assist ACs to discharge their duties, it is crucial to provide audit quality information to ACs for reference.    
Based on the FSC’s experience, CPA’s workload and inputs are vital to audit quality; further the proportion of Non-Audit Service (NAS) might also affect their independence. Therefore, the FSC incorporates these factors into AQI framework. Companies could have further understanding on whether CPAs take excessive engagement cases, whether CPAs are overloaded, whether engagement teams put appropriate effort at each stage and whether engagement teams provide excessive NAS to their clients. Equipped with the AQI information, companies would be able to make a comprehensive assessment on the audit quality of firms and CPAs. 
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.    
Considering the experience of other countries and also the size of firms and cost to produce AQI, 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 AQI Disclosure Framework and Template
Accounting and Auditing Supervision Division, Securities and Futures Bureau 
Contact Tel. (02)2774-7343 Shirley Huang, Section Chief
Please send your inquiry to FSCMAIL
 
Visitor: 1321   Update: 2021-08-31
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