1. 28 JULY 2013
BUSINESS
M
ike Rondel CA has
responsibility for BDO’s
Assurance Services
Division, and has
provided professional
services to medium and
large corporate entities as well as having
involvement with a large number of not-for-
profit and public sector organisations.
In discharging this responsibility, he
carries out a range of training assignments.
These responsibilities and the visibility
gained by being on the Canterbury–Westland
Local Leadership Team, and NZICA’s Public
Practice Advisory Group place him in a strong
position to comment on the Framework for
Audit Quality (the Framework) as it relates
to Audit Partners.
In the Framework the responsibility for
audit quality is heavily weighted towards the
Audit Partner.
While the Audit Partner takes primary
responsibility for the delivery of a firm’s
audit opinion, deficiencies in audit quality
can also occur because of circumstances
not necessarily under their control. These
can include staffing and resource shortages,
inadequate audit tools and training, and the
lack of an appropriate emphasis on quality
at higher levels.
“Ultimate responsibility for audit quality
in any audit firm rests with the leadership of
that firm, and accountability needs to extend
beyond the Audit Partner to other leaders
and management in the firm,” says Rondel.
It is important that the Framework covers
all of the areas of audit quality that would
reasonably be expected. However, Rondel
identifies a possible omission: “It details
the Engagement Quality Control Reviewer
(EQCR) process as a mechanism to ensure
audit quality, but it is silent on the EQCR’s
share in responsibility for audit quality.”
One reason for this may be because
the EQCR does not review all audit
documentation; their focus is to perform
an objective evaluation of the significant
judgement areas. Regardless of what is
explicitly stated, this is an area that would
benefit from further discussion.
In considering the issue of audit quality
responsibility further, he mentions it would
not be physically possible for the Audit
Partner to directly perform all of the tasks
that contribute to audit quality. In practice,
the Audit Partner delegates some tasks to
audit managers and senior managers.
“There is a review process which involves
multiple hierarchies, therefore the Audit
Partner is heavily reliant on their team of
professional qualified staff.”
He strongly believes that areas of
professional judgement should always land
back with the Audit Partner.
Professional scepticism is a skill considered
by many as the cornerstone of audit quality.
Rondel notes that such characteristics
are usually inherent in an individual, but
can be taught to some extent; however,
it can be more difficult to learn for those
that do not have a natural ability to be
sceptical: “Individuals with a well-rounded
background have a context against which to
apply commercial awareness, and those with
Audit quality
The role of the Audit
Partner.
by zowie murray ca
Professional
scepticism
is a skill
considered
by many
as the
cornerstone
of audit
quality

2. 29JULY 2013
a high level of personal integrity, are more
suitable as auditors.”
Psychometric testing is a method
commonly used within audit firms as part
of the recruitment process to identify such
individuals. He also mentions that his team
meet weekly for training and are encouraged
to share their practical experiences of having
to apply professional scepticism.
The environment in which an audit team
works can affect the mindset of the team
and hence the professional judgement of
an individual, which in turn can affect the
quality of the audit. The tone at the top
drives the firm’s values, ethics and attitudes,
and is the ultimate responsibility of the
organisation’s leadership who must lead by
example by giving consistent messages on
the importance of audit quality.
“The provision of a quality audit should
always be the number one objective in the
audit firm’s business strategy; that objective
needs to be communicated to all personnel on
a regular basis, and the results monitored.”
He says this can be done a number of
ways, for example continuously reinforcing
the importance of audit quality in team
meetings, training, reviews of audit files and
staff appraisals.
One of the most challenging aspects of
audit quality is balancing competing tensions
to ensure the delivery of high-quality, but
cost-effective audits.
“This is a constant challenge, especially
in the current economic environment where
audit fees have remained static despite the
minimum requirements under the auditing
standards increasing, so the audit has to
be performed efficiently.” To achieve such
efficiencies, audit firms generally develop
internal systems and processes, under global
audit methodologies, to assist network firms
to comply with the auditing standards and
ethical requirements. An efficient audit
can also add value in terms of minimising
disruptions to the audited entity’s ongoing
operations.
The requirement to balance specific aspects
of the audit extends to relationships as
well. An open and constructive relationship
between the auditor and management is vital
for a quality audit to be carried out.
“Business is all about relationships, but
you don’t want to get too cosy,” says Rondel.
“Therefore audit firms must have strict internal policies on gifts and
hospitality, which is basically what’s defined in the ethical standards.”
Continuity within the audit team is conducive to audit quality, but
the natural turnover of staff within audit firms, provides a safeguard
against over-familiarity.
Rondel outlined the criteria that signify to him that an audit failure
has occurred.
• Issuing of an incorrect audit opinion.
• Non-compliance with auditing standards or ethical requirements.
• Incorrect recommendations made in the report to management.
The public perception that company failure is synonymous with
audit failure “ is simply not the case”, he says. “Most companies fail
due to poor management.”
The auditor is required to consider management’s going concern
assessment, but aside from this an audit is relatively retrospective,
which does not always permit predictions about the future to be made.
An output of the audit is the Independent Auditor’s Report to the users
of the financial statements. Rondel believes that that audit opinion has
improved over time, but it is still difficult to explain what work has been
performed, so that users can assess audit quality for themselves.
Instead users look to the audit firm’s reputation as an indicator of
audit quality. But this not an assurance of quality on its own.
“The profession has had a wake-up call,” he remarks, “but the
clarified auditing standards and the increased regulation provide
challenges that auditor’s should rise to.”
The establishment of the Financial Markets Authority (FMA) should
lift the performance of auditing as a specialisation within the accounting
profession. Quality needs to be identified as an essential component of
an audit firm’s reputation and a prerequisite for a firm’s survival and
subsequent growth. This commitment to quality is also fundamental to
establishing and maintaining the reputation of the profession.
In continuing our commitment to audit quality, future Journal articles
will feature further perspectives on audit quality.
Zowie Murray CA is a Technical Advisor on NZICA’s Technical Services
Team.
Last month we looked at the role of management in enhancing
audit quality, and prior to that; the roles of the audit committee
and the standard setter. This month, we continue to consider
audit quality from multiple perspectives, and interview Mike
Rondel CA, Audit Partner at BDO, to gain an insight into the
Audit Partner’s responsibility for contributing to audit quality.
The Framework for Audit Quality (the Framework) issued by the
International Auditing and Assurance Standards Board (IAASB)
states that the primary responsibility for performing a quality
audit rests with the engagement partner.

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