Audit News: Issue 70 February 2022

All firms will be familiar with ICAEW’s obligation to carry out audit monitoring visits to all firms at least once every six years. The unprecedented circumstances of the pandemic put great pressure on firms and ICAEW, and the Audit Registration Committee (ARC) appreciates the efforts of all audit firms that have facilitated continuation of audit monitoring throughout 2020 and 2021.

Some audit visits have not met the statutory cycle during the period, but by the end of 2021 the six-year cycle was up to date. Throughout this time, the FRC has been clear that ICAEW must ensure that it continues to meet its statutory obligations for audit monitoring as its top priority.

We know that the effects of the pandemic are not yet over. ICAEW contacts firms well in advance to agree visit dates and firms must make every effort to accommodate the visit. All visits that cannot be agreed within the six-year cycle are reported to ARC who consider these delays on a case-by-case basis. It is likely that ARC will place restrictions on a firm’s audit registration until it can accommodate an audit monitoring visit, and these may include external file reviews before signing audit reports.

Firms in this position should be assured that any restrictions will be lifted at the earliest possible opportunity. However, while restrictions apply these will have a negative impact on audit firms, both in financial and operational terms.

Even the smallest firm needs to ensure it is prepared for compliance with the new standards from December 2022. International Standard on Quality Management (ISQM 1) requires firms to design, implement and operate a system of quality management to manage their engagement quality. Firms need to establish quality objectives, identify and assess the risks that could threaten the achievement of those objectives before designing and implementing responses to mitigate those risks.

Firms need to allow the necessary timescales to register with a particular EU state for the first time, when securing the audit of an entity with an oversees listing. This is to ensure the application goes through in time for the reporting period.

An update on matters for ICAEW audit-regulated firms including audit work in Ireland, revised ISAs and new resources.

All firms and IPs are asked to complete a survey anonymously after their review. We use the findings from these surveys to support the continuous improvement of our monitoring processes and procedures. The feedback is received and compiled by an independent survey company.

• Read the latest feedback from firms/IPs in respect of the conduct of Quality Assurance reviews carried out in 2021

The ICAEW Regulatory Board (IRB) has started a consultation process on its proposed changes to the ICAEW’s disciplinary framework that it has planned for 2022. The documents that are subject to the consultation are the product of a two-year project to update and simplify the current disciplinary scheme so it is more accessible for its users. The project also aimed to separate the obligations and duties of ICAEW members, affiliates, students and firms from provisions that set out the processes they should follow. The IRB wants to make improvements to aspects of the current process to ensure that it works more effectively and efficiently, while continuing to operate in the public interest.

Firms setting out on their quality management journey are likely to be thinking about root cause analysis (RCA) and where to start. In this article, ICAEW’s Audit & Assurance Faculty spoke with Natalie Gladwin, Head of Root Cause Analysis and Director at Grant Thornton UK on RCA resourcing decisions, including whether to resource externally or keep it in-house.

ICAEW is implementing a new records management system this spring. As the new system goes live, there may be some disruption to our usual processing times, particularly during March and April. If you or your firm is considering a new regulatory application or change (eg, to the structure of your firm or to your own registration record), please contact our regulatory support team by emailing regulatorysupport@icaew.com at the earliest opportunity.

Please note, you must notify us of any changes to the structure of your firm within 10 business days of the change. More information about maintaining your firm’s record is available here.

ICAEW’s audit monitoring report for 2020/21 shows most firms reached a good standard. But it also flags areas for improvement, highlights how root cause analysis can boost performance, and urges firms to tell an audit story.