ACCA Strategic Professional · Advanced Audit and Assurance (International) · International regulatory frameworks for audit and assurance services
Harlow & Co identifies, through monitoring activities under ISQM 1, that several engagement files lacked evidence of partner review of significant judgements. The firm evaluates the finding and concludes it is a deficiency that is severe and pervasive. What must the firm do?
The firm must evaluate the deficiency's severity and pervasiveness, investigate root causes, and implement remedial actions. The individual with ultimate responsibility must also evaluate the system of quality management at least annually and conclude whether it gives reasonable assurance that its quality objectives are being achieved.
- AEvaluate the effect on the system, perform root cause analysis, remediate, and the individual with ultimate responsibility must evaluate the system and conclude, at least annually, on whether it provides reasonable assurance of meeting its objectivesCorrect
- BWait for the next external inspection by the regulator before taking any action
- CTreat the matter as an engagement-level issue only and take no firm-level action
- DWithdraw from all audit engagements permanently
Explanation
ISQM 1 requires the firm to investigate root causes, evaluate the severity and pervasiveness of deficiencies, and design remedial actions. The individual with ultimate responsibility must evaluate the system at least annually and conclude whether it provides reasonable assurance. Waiting for regulators or ignoring firm-level impact is inconsistent with the standard.
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