Auditors need to do more to demonstrate the quality of their audits and, in particular, the independence of their views, according to the chair of the US Public Company Accounting Oversight Board (PCAOB).

Delivering the annual memorial lecture at ICAS, PCAOB chair James Doty said the audit market 'flirts with stagnation', and that many companies 'consider the audit an obligatory compliance function, best obtained at the lowest cost'.

However, Doty argued that 'professional, skilled and independent auditors are key to helping investors in public markets separate the credible managers from the charlatans', and the auditor 'foregoes popularity with management and takes on risk' by representing the public interest.

Doty outlined several PCAOB initiatives under way, aimed at improving the relevance, credibility and transparency of audits. These included looking at whether a different form of auditor's report could 'expand the auditor's mindset to identify key insights about the audit that will help a user understand the quality of financial reporting'.

The public did not distinguish between audit quality, Doty said, and there was a challenge to reward firms with demonstrably better audit quality.

Independence of approach was an element in this, and Doty identified auditor scepticism as 'both one of the most challenging issues in auditing as well as one of the most important for audit regulators to protect'.

While regulators have already raised concerns about how unconscious bias could impact on audit reporting, Doty felt other psychological concepts, such as obedience to authority, groupthink, over-optimism, over-confidence and escalation of commitment, should be recognised as potentially having an influence on audit.

Auditors also need to be mindful of the risk of subconsciously looking to evidence to confirm rather than disconfirm previously held beliefs, and of holding onto beliefs in spite of conflict evidence, Doty said.