Friday, April 12, 2024


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Reviewing the reviewers: Improving oversight of audits


During my long experience as an external auditor, including serving as the Head of the Audit and Assurance Division, I saw my role mainly as providing a service. But now, as a member of the Board of Directors with oversight duties for external auditors, I have gained a new outlook. In the past, I believed that the audit process would have been smoother if the client had been more cooperative and supportive.

ficantly impact audit quality

I understand that taking a teamwork-oriented and proactive approach as an auditor can greatly improve the quality of

Significant participation can greatly improve the efficiency of an audit. The perspective is certainly distinct when viewed from a different angle. This change in outlook has prompted me to suggest a fundamental review of the customary practices of Audit Committees in the Philippines.

We need to evaluate the current situation and make changes if necessary.

In the Philippines, it has become a common practice for audit committees to suggest the re-hiring of current external auditors, which is then routinely approved by stockholders. However, there has been a growing pressure from investors, regulators, and other interested parties, particularly from Western countries, for audit committees to play a more active role in assessing the effectiveness of their external auditors. I suggest that this type of evaluation be implemented within the country as well.

Ideally, this assessment should be completed on a yearly basis. It has two main objectives: improving the quality of audits and fostering a strong relationship between auditors and clients through open and meaningful communication.

organizations to monitor and evaluate the performance of companies

Various audit organizations have created assessment tools for tracking and assessing the performance of

There are a variety of different CPA organizations that recognize and use the term “rms,” though the majority of them

Both rms and organizations have reached a consensus that the tool should encompass the following aspects:

The credentials and effectiveness of the third-party auditors (typically referring to the team assigned to the task).

2. the audit fi

The methods and strategies used by rm to ensure quality (such as Audit Quality Indicators or AQIs);

The exchange and correspondence between the auditors, audit committee, and company.

The auditors must maintain independence, objectivity, and professional skepticism.


The audit’s public representation is primarily carried out by the engagement partner and their team.firm to the audit committee/company. The quality of service and the suffi

The utilization of resources provided by the engagement team will

Change the perception of the audit’s performance. fi

In the assessment phase, it is important to consider the team’s abilities and knowledge in relation to the company’s industry and business. Were they able to anticipate and address potential risks and provide valuable input during discussions with the audit committee? Did the team adhere to the agreed-upon deadline or communicate any delays proactively to the audit committee? Ultimately, did the team provide a satisfactory level of service for the cost?

firms in the world for the past 5 years, I have gained a wealth of experience and knowledge in the field of financial auditing.

After spending 5 years at one of the world’s leading auditing firms, I have accumulated valuable expertise and understanding in the realm of financial

After working in the country for more than 30 years, I have come to understand that large companies have established effective systems and procedures in place. Typically, there are eight components involved in the quality auditing process.firms:

1. Leadership and Governance

2. Firms Risk Assessment Process

3. Ethics and Independence

4. Procedures for Acceptance and Continuance

5. Resources

6. Engagement Performance

7. Information and Communication

8. Monitoring and Remediation

Audit firms in certain Western countries create AQIs, also known as Transparency Reports, which contain the eight elements listed above that apply to them. These AQIs typically include numerical data such as average partner workload, staff oversight (i.e. the ratio of partners to managers and staff), years of experience per level, training hours, and turnover rate. They may also include qualitative information such as the academic qualifications and professional affiliations of firm leaders, results of internal and external inspections, and more. Audit committees use these AQIs/Transparency Reports when assessing their auditors.

During the assessment of external auditors at a company level, it is important to inquire about their reputation in the business and professional communities, as well as the companies they have been hired by.


The topic is the adoption of AQIs in audits for companies that are publicly listed. Despite having established quality systems, the bigger audit firms must also establish a distinct monitoring system for these indicators.

There are several touchpoints during the engagement of an auditor — from planning meetings (where there are items required to be discussed with management and audit committee), to sudden meetings to discuss issues arising or noted during the audit, to fifinancial statements are fi

Individualized and summary meetings (post-audit) will be held to review and discuss any comments that were identified during the audit.

Effective communication is crucial for evaluating the effectiveness of auditors. Is their communication proactive, addressing potential issues such as changes in standards that will become effective in the future? Are they informing management and the audit committee about potential impacts on the company? Do they communicate any potential obstacles that may prevent the company from meeting regulatory deadlines? Are they discussing emerging trends, such as ESG, cybersecurity, and AI, with top management during meetings?


Identified the possible challenges to autonomy, including personal gain, self-examination, close association, coercion, and partiality.fied mitigating controls (or in extreme cases, avoidance or cessation). Indeed, the external auditors must be likened to Caesar’s wife: to be above suspicion.

During the audit, the audit committee’s communication with the auditors allows for observation of their independence and objectivity. Were the auditors clear to the audit committee about their independence in taking on the engagement (as required by communication with the client)? Was there a clear display of objectivity when evaluating items that require judgment and estimation (such as actively questioning management’s assumptions)? Did the auditors assess the appropriateness of adopting accounting standards and consider alternative treatments?

Using assessment tools: Moving forward

Using evaluation tools during the assessment process is an effective way to gauge the strengths of auditors and pinpoint areas for growth. These tools offer audit committees a structured approach to have informed conversations about the performance of auditors. By openly sharing the outcomes of these assessments, audit committees can promote better collaboration and enhance the overall excellence of audits.


As the oversight of audits changes, it is crucial for audit committees in the Philippines to adopt a proactive and thorough approach. Through rigorous evaluations based on important areas of performance and utilizing assessment tools, audit committees can effectively fulfill their oversight duties. This shift has the potential to improve audit quality, strengthen relationships between auditors and clients, and ultimately uphold the integrity of the

Financial reporting is an integral aspect of the business environment.


Jessie C. Carpio serves on the Boards of Directors and has supervisory responsibilities for external auditors. He is a member of the Boards for several US subsidiaries located in the Philippines. Before retiring, he held the position of head of audit and assurance at a leading auditing firm in the country.

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