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

Harbour & Pike, an audit firm, is designing its system of quality management under ISQM 1. The managing partner says the firm should simply continue its existing quality control policies and review them only when an inspection finding arises. Which statement best reflects ISQM 1?

ISQM 1 requires a firm to design, implement and operate a risk-based system of quality management, with quality objectives, risk assessment and responses, monitoring and remediation, and to evaluate it at least annually. Reacting only to inspection findings is insufficient, and certification by a regulator is not required.

  1. AThe firm must design, implement and operate a system of quality management that is risk-based, with quality objectives, risk assessment and responses, and it must be evaluated at least annuallyCorrect
  2. BThe firm need only document quality policies and procedures for listed entity audits, with no formal evaluation of the system
  3. CThe system of quality management is the responsibility of the engagement partner on each audit rather than the firm
  4. DThe firm must have its system of quality management externally certified by a regulator each year

Explanation

ISQM 1 requires a proactive, risk-based system: setting quality objectives, identifying and assessing quality risks, designing responses, and monitoring and remediation. The firm must evaluate the system periodically, at least annually, and conclude on it. Waiting for inspection findings is reactive and does not comply. External certification is not required by ISQM 1.

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