2016B06 – Coordination and communication challenges in global group audits: evidence from component audit leaders

This masterclass, presented by Anna Gold and Andrew Trotman, discusses the challenges and drivers of audit quality in global group audits, specifically from the perspective of component auditors (local auditors auditing a specific subsidiary). Their insights are based on a study surveying 86 component audit leaders in the Netherlands who worked with group auditors from the UK and Germany.

Key Takeaways:

• The “Black Box” of Component Audits: While regulators often focus on the group auditor, this study reveals that component auditors frequently face significant challenges due to the behavior of the group auditor.

• Staffing & Planning Issues: A major frustration is the lack of timely communication. Group auditors often provide instructions too late, leading to scheduling conflicts during busy seasons or holidays. Additionally, budgets are frequently set too low to form an experienced team.

• The “Review” Gap: A striking finding is that less than half of the component auditors received any review comments or feedback from the group auditor. This lack of interaction makes component auditors feel unimportant and demotivated, which negatively impacts audit quality and opportunities for learning.

• Cultural Mismatches: The study highlights friction caused by cultural differences, such as the perceived stricter audit standards in the Netherlands compared to other jurisdictions, and differences in communication styles (e.g., Dutch directness).

Conclusion: To improve the quality of global group audits, there is a critical need for timely involvement and better communication from the group auditor. Providing adequate budgets and meaningful feedback (reviews) is essential to maintain the motivation and effectiveness of component audit teams.