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

Lindqvist & Co's annual monitoring identifies that several audit files lacked evidence of supervision by senior staff. The deficiency is judged severe and pervasive to the firm's system of quality management. What does ISQM 1 require the firm to do at the time of the annual evaluation?

When monitoring finds deficiencies that are severe and pervasive, ISQM 1 requires the firm to conclude that its system of quality management does not provide reasonable assurance that the quality objectives are met, and to take prompt remedial action. It is not required to withdraw from all engagements.

  1. AConclude that the system provides reasonable assurance regardless, since only individual files were affected
  2. BEvaluate and conclude that the system does not provide reasonable assurance that its objectives are being achieved, and take actionCorrect
  3. CWithdraw immediately from all audit engagements until remediation is complete
  4. DReport the deficiency to audit clients and await their instructions

Explanation

Where deficiencies are severe and pervasive, the firm cannot conclude the system provides reasonable assurance. The firm must then conclude accordingly, and take prompt remedial action. Ignoring the deficiency is wrong, and ISQM 1 does not require automatic withdrawal from all engagements or reporting to clients for instruction.

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