Welcome to Audit News 71, your regulatory update containing the latest technical guidance and best practice advice.
Monitoring: Quality Assurance updates
Our monitoring approach to implementation of ISQM1
ISQM1 and the system of quality management (SoQM) represent a significant change from ISQC1 requirements. The new SoQM will ensure that your audit procedures evolve with your audit firm and its clients, with key components of risk assessment, monitoring and evaluation.
Many of your firm’s existing quality control policies and procedures will remain relevant within the new framework and originate in UK Audit Regulations that pre-date the original ISQC1 in 2005. However, you should take this opportunity to reassess, refresh and update existing procedures.
Firms need to have designed and implemented their SoQM by 15 December 2022 and must perform an evaluation of the SoQM by 15 December 2023. Operating a SoQM is an iterative process; all firms will need a good starting point on 15 December 2022 and the SoQM will develop and improve over time.
The Quality Assurance Department (QAD) is working with ICAEW Audit and Assurance Faculty to support its implementation guidance for ISQM1. We are aware of considerable interest from firms to understand our planned approach to monitoring compliance with the new requirements.
In early 2023 we will contact a sample of audit firms to ask for further information about their implementation of ISQM1, including details of their risk assessment and background supporting information about their audit clients and staff. We will share insights and good practice from this survey for the benefit of all ICAEW audit firms. Depending on the results, we may decide to conduct similar surveys in 2024 and 2025 expanding into evaluation and monitoring requirements.
Audit monitoring visits from January 2023 will include review of the implementation of ISQM1 and provide an opportunity for those firms to discuss their revised procedures with a reviewer. Firms can draw on their reviewer’s experience to assist them in identifying potential areas where further development and improvements to the procedures are needed.
Audit monitoring visits update: the risk-based approach
ICAEW is required by law to conduct monitoring visits to all firms registered for audit. As required by statute, we use a risk-based approach to select firms for visits. All firms will be familiar with the six-year visit cycle but also need to be aware that they may be selected for monitoring visits more frequently, depending on factors such as:
- the size and complexity of the firm;
- its RSB-scope audit clients; and
- previous regulatory history.
Some firms, particularly larger audit firms, will be used to these more frequent monitoring visits, with some visited by us every 1-2 years.
In response to changes in the audit market, the growth of challenger firms and some more complex audits moving away from the largest audit firms, we are increasing our activities to monitor the audits undertaken across firms registered for audit with ICAEW.
This means that more firms may be selected for accelerated monitoring visits, and we will also be contacting some firms between monitoring visits about particular audit clients, or groups of audit clients. The extra contact points may take the form of a meeting and/or review of completed audit files and will be in addition to standard audit monitoring visits.
These changes in the nature and scope of our audit and risk monitoring will support firms to develop their audit practices and maintain high standards.
News in general
Auditor resignation statements: why clarity is vital
ICAEW has responded to Brydon criticism aimed squarely at the quality of auditor resignation statements with guidance on making them more informative for stakeholders.
FRC seeks to register auditors of public interest entities
Proposed changes to the registration of auditors of public interest entities will change the routing of AQR reports but will not have a substantive impact on outcomes.
‘Half-hearted’ audit reform plans announced
The government has outlined its corporate governance and audit reforms, including the formation of ARGA, a redefinition of PIE and the need for ‘challenger firms’.
Irish Audit Regulations revised
Firms registered for audit in Ireland with Chartered Accountants Ireland (CAI) are reminded that CAI has recently issued new stand-alone Audit Regulations for Ireland. The Audit Regulations Ireland replace the Audit Regulations and Guidance (effective 1 January 2020) and the addendum effective 22 December 2021.
The new Audit Regulations Ireland include new RI CPD obligations and a new requirement for practice continuity (alternate) arrangements for sole practice audit firms.
The UK regulations are due to be updated later this year and may include elements of these Irish changes.
The issue of these separate Irish regulations ends the use of joint regulations for the two countries which had been in operation from 1995.
Audit guidance in response to the Ukraine crisis
No one can fail to be appalled by the actions of the Russian Government and the awful situation for Ukraine and its people. Although insignificant in comparison, many ICAEW regulated audit firms will face some challenges and difficult decisions as a result.
Reporting matters of material significance to charity regulators
The Charity Commission for England and Wales wants to see ICAEW audit firms do better at meeting their duty to report matters of material significance including modified audit opinions for charities. In this article, we look at why these reports are so important and what firms should be doing to improve their reporting.
We have also produced guidance for auditors and independent examiners on their duty to report any matters of material significance to UK charity regulators. The guidance sets out what should be considered a matter of material significance and the expectations of UK charity regulators.
Professional Standards updates
The latest Professional Standards update from Regulatory and Conduct News
Read the latest regulatory updates and guidance.
Upholding the highest standards
ICAEW’s regulatory and conduct roles are governed with robust oversight by the ICAEW Regulatory Board and oversight bodies including the Financial Reporting Council and the Legal Services Board.
Find out more in the ICAEW Regulatory and Conduct Report 2021-2022