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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability

Orion & Partners audits a listed client and wants to reduce the risk of negligence claims at engagement level. Which action is most directly a risk-management measure under quality management (ISQM 1 and ISA 220 (Revised)) rather than a risk-transfer measure?

An engagement quality review before the report is issued is risk management because it lowers the chance of a flawed opinion. Raising insurance limits, capping liability by agreement, and using limited liability structures only transfer or limit the financial consequences after an error has occurred.

  1. AHaving an engagement quality review performed before the audit report is issued on the listed clientCorrect
  2. BIncreasing the PII policy limit of indemnity
  3. CNegotiating a liability cap in the engagement letter where the law permits it
  4. DIncorporating the firm as a limited liability partnership

Explanation

An engagement quality review is a response to quality risks and reduces the likelihood of an inappropriate opinion, so it manages risk. The other options limit or transfer the financial consequences of a claim rather than preventing the error.

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