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Audit monitoring of ICAEW audit registered firms

Quality Assurance monitoring – updated November 2021

ICAEW’s regulatory role

Audit monitoring FAQs

Access FAQs about our audit monitoring process

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We have an important regulatory role which is carried out by the ICAEW Professional Standards Department. We are the largest recognised supervisory body in the UK, registering around 2,500 firms for audit. Our philosophy is to be a robust, proportionate and transparent regulator. At the same time, we offer help and support to our firms where appropriate. Further information about our audit monitoring visit process is available below, including an update on the return to onsite monitoring.

Return to onsite reviews

Since the beginning of September 2021, most audit monitoring visits have returned onsite. Onsite reviews provide the best opportunity for high quality interaction between audit firms and our reviewers and enable the visit to be conducted in the most proportionate and effective manner for all of those involved.

Our approach to onsite visits is the same as it was pre-March 2020, and we plan to review audit files and whole-firm procedures, discuss any questions arising and leave the firm with a complete record of matters arising from the visit within the (typically) two-day visit timeframe.

As we emerge from the pandemic, there are new challenges to address, both relating to continued high infection rates and the introduction of hybrid working models.

You will have the opportunity to discuss any appropriate precautions with your reviewer in advance, and you should plan for Responsible Individuals and Managers to be available throughout the visit. In the case of unforeseen circumstances in the days leading up to your visit please tell us and we can agree an appropriate solution.

Financial Reporting Council (FRC) oversight

The FRC monitors the audit of Public Interest Entities ((PIEs) a fully listed company, bank, or an insurance provider) and the procedures relating to these engagements.
As the UK Competent Authority, the FRC delegates tasks to ICAEW including audit monitoring of non-PIE audits and non-PIE audit firms. The FRC Professional Oversight team conducts an ongoing review of our performance of these delegated tasks. Every year a small number of our audit monitoring visits are shadowed by inspectors from the Professional Oversight team.

An FRC inspector will join the QAD reviewer(s) at your office, sit in on meetings and will also choose at least one of the audit files QAD selects to review themselves. ICAEW and the Audit Registration Committee retain sole responsibility for your audit monitoring visit, and the FRC does not influence the conclusions or outcome.

If your visit is selected, we aim to give you as much notice as possible but may only have confirmation of the shadowing 1-2 weeks beforehand. We appreciate firms’ co-operation in facilitating these shadowed visits, which normally includes providing more space and an additional laptop for the FRC inspector to access audit files.

If you have any questions about your visit, please contact qadvisits@icaew.com

A message from the FRC about its oversight of ICAEW audit monitoring work

The FRC would like to remind firms that as the UK Competent Authority of statutory audit, the FRC remains responsible for the tasks delegated to Recognised Supervisory Bodies (RSBs) under the Delegation Agreements and Regulation 3(4) of SATCAR. Schedule 2 of SATCAR provides powers for the UK Competent Authority to request information from a statutory auditor for any purpose related to inspecting or investigating statutory audit work.

There is no provision that says that the FRC loses these powers if it has delegated any functions to RSBs. There is no requirement for the FRC to reclaim a task to exercise this power. Therefore, the FRC is entitled to ask audit firms for any information or access to information if it is considered necessary for inspecting or investigating statutory audit work even though the audit monitoring work is carried out by ICAEW.

Audit monitoring reports

Every year our quality assurance team looks back at the results of the last 12 months of audit monitoring reviews, covering the Big 4 to sole practitioners, and identifies areas for improvement and examples of good practice. We recommend you familiarise yourself with our latest report to help you stay up to date with best practice advice and current common issues.

Our approach to audit monitoring

We conduct monitoring visits to firms registered for audit with ICAEW. As well as our important role of protecting the public interest, we recognise the challenges that firms face and understand you may sometimes need help. We believe we are successful in fulfilling both objectives.

We have an experienced team of reviewers, who are all chartered accountants. As well as keeping up to date with the latest technical developments and interpretations of standards, we provide regular training to all our reviewers to continue to embed our philosophy to be proportionate and focus on the most significant aspects of the audit, and to help to ensure a consistent approach across our team.

Your audit monitoring visit

During your visit, we will review and assess your firm’s procedures, processes and controls to make sure:

  • audits comply with professional standards; and
  • your firm meets the requirements of the audit regulations.

We use a risk-based approach to selecting the dates for firm visits. This is in line with the Audit Regulation & Directive regime and the requirements of our oversight body, the FRC. There are various factors which determine the risk profile of your firm and therefore your next visit date. These include:

  • the size and complexity of the firm;
  • its RSB-scope audit clients; and
  • previous regulatory history.

You may have your next visit on or just before the six-year anniversary of your previous visit, or we may need to visit more frequently due to your risk profile. We will continue to notify you when we select you for a visit.

Usually, we carry out our audit visits separately from visits for Practice Assurance, DPB (Investment Business) and probate. However, in some cases, it's more practical to cover more than one area.

The monitoring process if your firm carries out PIE audits

Since 17 June 2016, any firm which audits at least one PIE (a fully listed company, bank, or an insurance provider) is monitored by the FRC. The FRC also monitors audits of AIM quoted entities with market capitalisation over €200m (average over 3 years) and Lloyd’s syndicates.

These together with PIEs are called retained audits. Audit Quality Review (AQR) visits will cover the whole firm and overall quality control procedures and review of a sample of PIE/retained audits. The FRC will advise firms when a visit is due to take place.

We will continue to visit your firm if you have PIEs or other retained audits to review all other audit work. We may need to review some aspects of your whole-firm procedures to complete our visits.

 

The visit process

Our risk-based framework – visit cycles
  • Risk-based approach to visiting our registered audit firms.
  • Visits all firms at least every six years as a minimum.
  • More frequent visits to larger firms with significant audit client bases, either every year or every three to four years depending on the size of the firm.
  • Revisits to firms within three to four years if they required some follow-up action for weaknesses in audit work at the previous visit (‘risk’ visits)
Risk visits: while such firms will have been required to submit evidence of improvement, our experience tells us that those firms can slip back, therefore seeing them again sooner rather than later is the best way to ensure they stay on track.
Scope of our visits – summary
  • Assessment of whole-firm procedures, except for firms in FRC scope because they have audits of PIEs or other Retained Audits.
  • Detailed review of a sample of audit files, excluding audits in FRC remit.
  • Onsite visits to all firms, but desktop review and telephone interview for firms with no audits.
Assessing whole-firm procedures
  • Review of policies and procedures covering the key requirements of the Audit Regulations and ISQC1.
  • Focus on audit compliance review process, arrangements for maintaining competence and meeting the requirements of International Education Standard 8 (including review of CPD records for a sample of individuals) and compliance with ethical standards.
Review of audit files
  • Selection of audit files for review based on risk. Number of files varies according to the size of the firm, number and mix of audits and number of Responsible Individuals (RIs).
  • Reviewers use their experience and judgement to select the most appropriate areas for in-depth review. Focus on quality of audit evidence in risk areas and support for key judgements.
  • Queries discussed directly with the relevant RIs. Discussion is key to reaching a fair assessment. Firms given a complete trail to show how we arrive at our conclusions on each point.
Concluding and reporting
  • Findings summarised for closing meeting. Balanced summary provided, significant points clearly signposted.
  • Firms required to provide results of root cause analysis for any significant findings, together with details of actions.
  • Assess whether firm has commitment and ability to address issues and form overall conclusion.
  • Close visit if no further action needed, request additional information/confirmations if appropriate.
  • If serious concerns, report to ARC to consider regulatory action. Firms have the opportunity to comment on the report before it goes to ARC.

Support for ICAEW audit firms

We offer practical audit support and guidance to ICAEW auditors including the latest regulatory updates in Audit News, reports and webinars to help your firm prepare your next audit monitoring visit.