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

Harlow & Finch, an audit firm, is redesigning its system of quality management to comply with ISQM 1. The managing partner proposes starting by selecting the quality responses the firm will use and then deciding which risks they should address. Which approach is consistent with ISQM 1?

The firm should set quality objectives, identify and assess the quality risks that threaten them, and then design and implement responses to those risks. ISQM 1 is risk-based, so responses must be tailored to assessed risks rather than chosen first or copied from other firms.

  1. AEstablish quality objectives, identify and assess quality risks that could prevent those objectives being achieved, then design and implement responses to address the risksCorrect
  2. BDesign responses first, then derive quality objectives from the responses that are already operating
  3. CAdopt the quality objectives of another firm and omit the risk assessment, since responses are what regulators inspect
  4. DIdentify quality risks only after the first external inspection has reported deficiencies

Explanation

ISQM 1 requires a risk-based approach: the firm establishes quality objectives, identifies and assesses quality risks to achieving them, and designs and implements responses to address those risks. Starting with responses reverses the logic, because responses must be tailored to assessed risks.

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