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

Kestrel LLP audits a listed bank and a small private retailer. The firm's ISQM 1 policy states that an engagement quality review is performed only on listed entity audits. Under ISQM 1, what is the main weakness of this policy?

The policy is deficient because ISQM 1 requires engagement quality reviews not only for listed entity audits but also where law requires them or where the firm judges a review to be an appropriate response to assessed quality risks. A listed-only policy omits those further categories.

  1. AThe firm must perform an engagement quality review on every audit it undertakes
  2. BThe policy ignores the requirement to perform reviews for engagements where the firm determines a review is an appropriate response to assessed quality risksCorrect
  3. CEngagement quality reviews may only be performed by the engagement partner's own team
  4. DListed entity audits are exempt from engagement quality reviews under ISQM 1

Explanation

ISQM 1 requires an engagement quality review for audits of listed entities, for engagements required by law or regulation, and for engagements where the firm decides a review is an appropriate response to quality risks. Limiting reviews to listed entities omits the third category. A review is not needed on every audit, and the reviewer must be objective and not part of the team.

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