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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Other current issues

Hartwell & Co, an audit firm, is designing its system of quality management under ISQM 1. The managing partner says the firm will simply keep its existing quality control policies and add new ones only after an inspection finding. Which feature of ISQM 1 does this approach most clearly fail to meet?

ISQM 1 requires a proactive, risk-based system of quality management in which the firm sets quality objectives, identifies and assesses quality risks, and designs responses. Adding policies only after inspection findings is reactive, so it fails this core requirement. Engagement quality reviews are not required for every engagement.

  1. AThe requirement to design and operate a risk-based system that identifies quality risks and responds to themCorrect
  2. BThe requirement that every engagement is subject to an engagement quality review
  3. CThe requirement that the firm must be certified by an external regulator before accepting audits
  4. DThe requirement that all policies are identical across every firm in the same network

Explanation

ISQM 1 requires a proactive, risk-based approach: the firm sets quality objectives, identifies and assesses quality risks, and designs responses. A reactive approach driven by inspection findings does not do this. Engagement quality reviews apply only to specified engagements, not all, and there is no external certification or network uniformity requirement.

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