Importance of Quality Control for Audit Firms

As we have mentioned before, the term "Quality Control" has a different meaning for Audit firms. When this term is used in the manufacturing sector it refers to the quality control process of the output whereas in an audit firm the term refers to the internal control mechanism of the firm. 
The responsibilities of auditors related to quality control are outlined in a standard called ISQC 1 which covers the quality control for audit firms. This standard encompasses the responsibility of the auditor related to the quality control mechanism that overlooks the audits and other activities of audit firms to maintain transparency, competence and professionalism. 

Why is Quality Control needed?
The answer to this question is very simple.

Listed companies are required by law to publish financial statements audited by external auditors. The stakeholders, including the investors and lenders use the audited financial statements to make their investment decisions. They place their trust in the authenticity of the financial statements or in other words they place their trust in the quality control mechanism of the audit firm that carried out the audit.

If therefore, it turns out that the audit firm failed to uncover fraud that is of material nature, the stakeholders lose their trust not only in the company but also in the audit firm that carried out the audit. EY for instance, is under fire for the mess created with Wirecard. If EY is found guilty of negligence, then it will lose its considerable standing in the market and if it is involved directly in covering up the fraud then it won`t only lose market share but may also face legal action and penalties. 
That is why it is of utmost importance for regulators and audit firms to ensure the highest quality control standards in order to maintain the trust of investors and other stakeholders in the financial statements because the financial system to a very great extent stands on trust. 

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