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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

Marlowe Audit LLP's annual monitoring under ISQM 1 reveals that on three of ten inspected engagements, the working papers contained no documented evaluation of management's going concern assessment. The firm's leadership considers the finding isolated. What should the firm do FIRST under ISQM 1?

The firm should evaluate the severity and pervasiveness of the deficiency, investigate its root cause, and design and implement remedial actions. ISQM 1 requires this response to monitoring findings; ignoring them because fewer than half the files are affected, or simply replacing partners, does not address the underlying system weakness.

  1. AWait for the next annual cycle to see whether the finding recurs
  2. BDismiss the deficiency as it affects fewer than half of the files inspected
  3. CEvaluate the severity and pervasiveness of the identified deficiency, investigate its root cause, and design remedial actionsCorrect
  4. DReplace the engagement partners on the three files and take no further action

Explanation

ISQM 1 requires the firm to evaluate identified deficiencies for severity and pervasiveness, investigate root causes, and design and implement remedial actions. Three of ten files is a significant rate and not necessarily isolated. Waiting (A) and dismissing (B) ignore the requirement, while replacing partners (D) addresses individuals without considering the cause in the firm's system.

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