ACCA Strategic Professional · Advanced Audit and Assurance (International) · Quality management (firm and engagement level)
A national audit regulator inspects Brightwater & Co and reports that the firm's engagement files for three listed clients lacked sufficient evidence for impairment of goodwill, although the firm's last internal review (a cyclical file inspection) rated all three files as satisfactory. The firm's leadership argues the regulator's findings should be ignored because internal reviews are more reliable. Which response is most consistent with ISQM 1?
The firm should treat the regulator's findings as input to its monitoring, investigate why its own review missed the problems, and assess whether the monitoring activities are deficient. ISQM 1 expects root cause analysis at system level, not just fixing three files, ignoring the regulator, or replacing partners wholesale.
- AIgnore the findings, since the internal review was performed by the firm's own qualified partners
- BTreat the regulator's findings as information to be evaluated in monitoring, consider why the internal review did not detect the issues, and assess whether the monitoring activities themselves are deficientCorrect
- COnly remediate the three files and leave the system unchanged
- DReplace all engagement partners on listed clients immediately
Explanation
ISQM 1 requires external inspection findings to be considered in the firm's monitoring and remediation. A difference between regulator and internal results suggests possible weakness in the monitoring activities (such as reviewer competence or scope), which must be investigated through root cause analysis. Fixing only the files ignores system-level causes, and wholesale replacement is not required.
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