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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Quality management (firm and engagement level)

Harlow Assurance is a mid-sized firm. Its managing partner has been told that three engagement partners received positive performance ratings and bonuses mainly because of the fees they generated, even though internal inspections found significant deficiencies on their files. Which ISQM 1 component is most directly undermined by this practice?

The governance and leadership component is undermined. Rewarding partners for fees despite significant inspection deficiencies shows commercial priorities outweighing quality, contrary to ISQM 1's requirement that the firm's culture, performance evaluation and remuneration demonstrate a commitment to quality.

  1. AThe information and communication component, since the findings were not documented
  2. BThe monitoring and remediation process, since inspections should not have been performed on those files
  3. CThe resources component, because the partners lacked technological resources
  4. DThe governance and leadership component, because performance evaluation and remuneration should demonstrate a commitment to quality rather than reward commercial priorities over qualityCorrect

Explanation

Under ISQM 1 the governance and leadership component requires that organisational structure, assignment of responsibilities and resource planning support quality, and that the culture recognises quality as paramount. Rewarding fee generation despite poor inspection results signals that commercial considerations outweigh quality. The inspections themselves are part of monitoring and are working properly, so that component is not the one being undermined.

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