1.9 Importance of Audit Quality

As we have discussed throughout this topic, the auditor’s role is to provide assurance regarding the quality of information provided by a company. Users of company-provided information gain more assurance from auditors who provide high-quality audits. For example, an investor would be wary of the audit report offered by an auditor whose clients’ financial statements were regularly discovered to have major misstatements after an auditor issued an unmodified (also referred to as unqualified) opinion. The auditor’s opinion only provides assurance to the extent that financial statement users can trust that the auditor would have identified any significant errors or fraud (i.e., material). Although auditors provide assurance by performing rigorous audit procedures, financial statement users should understand that audits are not intended to provide absolute assurance that the financial statements are free of material misstatement. Rather, an audit should provide reasonable assurancereasonable assurance: A high level of, but not absolute, certainty that the conclusion reached by the auditor is correct..

Because of the enormous cost and unrealistic effort involved, auditors do not examine every transaction recorded in a company’s information system. Instead, they rely on a sampling process to obtain evidence to support their conclusions regarding the reliability of the financial statements. Because auditors do not examine every transaction, the possibility exists that they may reach incorrect conclusions. When an auditor issues an unmodified (unqualified) report on a set of financial statements that are, in fact, materially inaccurate, this is known as an audit failureaudit failure: A situation where an auditor reports to users of the financial statements that those statements are free of material misstatements when they are in fact materially misstated.. Because the value of their opinion is based on its accuracy, auditors work hard to ensure that audit failures are very rare occurrences.