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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

Dalton LLP's system of quality management identified a quality risk: audit teams may not allocate enough time to challenge management's estimates on busy engagements. Under ISQM 1, what should the firm do next?

The firm must design and implement responses to the assessed quality risk, such as resourcing and review controls, and then monitor their effectiveness. ISQM 1 follows a risk-based cycle of objectives, risks, responses and monitoring, so passively waiting for inspection findings is not acceptable.

  1. ADesign and implement a response to the assessed quality risk, such as resource allocation and review requirements, and monitor whether it worksCorrect
  2. BRecord the risk and wait for the external inspection to indicate whether action is needed
  3. CTransfer the risk to the engagement partners through the engagement letter and take no firm-level action
  4. DRemove the risk from the system because it relates to professional judgement, which cannot be controlled

Explanation

ISQM 1 uses a risk-based process: establish quality objectives, identify and assess quality risks, then design and implement responses to address them. Responses are then monitored and remediated. Waiting for an external inspection or ignoring judgement-related risks is not consistent with this process.

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