2017C02-1 - What do we already know from research about the impact of a combination of audit and non-audit services

The evolution of performance measurement, career development, and compensation for audit partners in the context of public scrutiny

The study examines how audit firms changed their policies regarding audit partner performance measurement, career development, and compensation during a period of heightened public scrutiny of audit quality (2007–2017).

Implementing such policy changes requires a delicate transition in organizational design and internal processes and may not always translate effectively into day-to-day practices. Using proprietary performance management policies and individual partner performance and compensation data from the eight largest Dutch audit firms provides an in-depth understanding of the evolution of performance management for audit partners.

Findings indicate that most policy changes have real consequences. For example, audit quality becomes more influential in career development, while profit sharing is increasingly linked to quality and long-term performance.

Overall, audit firms appear responsive to public scrutiny, aligning partner incentives more closely with societal expectations of audit quality.

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The Future of Assurance in Capital Markets

Efficient capital markets rely on a continuous supply of reliable and timely information and auditors are critical to this process. The economic value of an audit derives from making information more reliable to users (i.e., to reduce the risk of erroneous or manipulated information influencing the judgments of market participants). Traditionally, the focus of auditing has been on annual financial reports; however, given the speed of information creation and dissemination, the role of auditors may need to adapt or expand in the future. There are three areas where auditors might help improve information quality: (1) non-GAAP earnings, (2) ESG reporting, and (3) cybersecurity risks disclosures. To provide assurance over these types of information, audit firms need to identify the appropriate subject matter for assurance, obtain the expertise to provide assurance, develop a verification process for providing assurance, and commit to a system of organizational support for the assurance process. Multidisciplinary practices have the potential to provide expanded assurance over more information, as well as assurance related to the processes that generate the information. However, success is not inevitable, and market, social, and regulatory forces will have much to say about the emergence of new assurance initiatives. https://publications.aaahq.org/accounting-horizons/article-abstract/35/1/133/2465/The-Future-of-Assurance-in-Capital-Markets

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Ten considerations for conducting Root Cause Analysis in auditing

Root cause analysis (RCA) is increasingly used in auditing as part of quality assurance systems to improve audit quality. This practice note outlines ten key considerations for applying RCA effectively in audit firms.

RCA is not about assigning blame but fostering organizational learning and continuous improvement. It emphasizes understanding human behavior, recognizing that errors and successes often share similar causes, and acknowledging the complexity of organizational contexts where multiple factors contribute to outcomes.

Effective RCA requires rigorous, evidence-based approaches, practical and measurable recommendations, and collaborative processes involving skilled professionals. Challenges include interviewing staff in high-accountability environments, managing interpersonal dynamics, and ensuring recommendations go beyond superficial fixes like training.

The note also highlights the value of analyzing near misses and positive quality events, and advocates for thematic and firm-level analyses for deeper insights. Ultimately, RCA can help audit firms align practices with societal expectations of audit quality when implemented thoughtfully and systematically.

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