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

Orchard Audit's root cause analysis of inspection findings shows that several audits had weak challenge of management estimates because engagement teams were consistently under time pressure from fixed fee budgets. Under ISQM 1, which response best addresses the underlying cause as part of the firm's system of quality management?

The best response is to treat the root cause, time pressure from fixed fee budgets, as a quality risk in the resources and engagement performance components, design responses such as realistic budgeting and resourcing, and monitor them. Reissuing methodology or replacing partners does not address the underlying cause.

  1. AReissue the audit methodology on estimates and require staff to re-read it
  2. BAssess the related quality risk in the resources and engagement performance components and design responses, such as realistic budgeting and resource allocation, then monitor their effectivenessCorrect
  3. CRemove the engagement partners from the affected audits and take no further action
  4. DReduce fees to clients so that fewer hours are charged

Explanation

ISQM 1 expects the firm to investigate root causes of deficiencies and design responses that address them. Time pressure is a resourcing and culture issue, so the quality risk should be assessed and responses such as realistic budgets and staffing designed and monitored. Re-issuing methodology ignores the cause, removing partners is not a system response, and reducing fees worsens the problem.

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