Audit firms regulated by ICAEW are subject to monitoring by the Quality Assurance Department (QAD). Why and when your firm is selected for an audit monitoring visit by QAD depends on a number of factors. They include the size and complexity of your firm, its regulatory history and whether any UK entities the firm audits are within scope of the Audit Quality Review (AQR) team of the Financial Reporting Council (FRC).
The FRC monitors the audits of public interest entities, such as banks, listed companies and insurance providers, and procedures relating to these engagements, together with certain other ‘retained audits’. QAD is responsible for monitoring all other audit work in ICAEW-registered firms, from the Big Four to small practitioners, including firms registered under the Crown Dependencies’ recognised auditor oversight regime.
When, why and what
ICAEW is required by law to conduct monitoring visits to all firms registered for audit. 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. The six-year cycle means that QAD must review the audit work of every ICAEW-registered audit firm at least every six years. A visit can, however, occur at any time – a six-year gap between reviews is not an automatic default. As required by statute, ICAEW uses a risk-based approach to select companies for visits and some firms will receive more monitoring visits than others.
Larger firms, in particular, will already be used to more frequent monitoring visits, with some visited by QAD every one to two 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, ICAEW is increasing its 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. QAD 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.
New International Standards on Quality Management (ISQMs) will also be reflected in QAD’s approach to audit quality monitoring in future. The shift from quality control to quality management is not insignificant and from January 2023, QAD audit monitoring visits will include review of the firm’s ISQM 1 implementation. Also, early in 2023, QAD will contact selected audit firms for a survey on ISQM 1 implementation.
These changes in the nature and scope of ICAEW’s audit and risk monitoring will support firms to develop their audit practices and maintain high standards.
Support resources
In many ways, preparing for and managing your firms audit quality monitoring review by QAD will, nonetheless, be ‘business as usual’. To assist, there are plenty of ICAEW resources available offering insights and tips to help your firm to be ready for what’s coming before, during and after a visit. You may want to start your journey with one of the following.
‘Quality assurance monitoring of ICAEW audit firms’ offers information and links to various related resources.
The hub page includes:
- explanations of ICAEW’s regulatory role (as a recognised supervisory body) and FRC oversight of ICAEW audit monitoring work;
- links to the annual overview of QAD audit monitoring activities and reports;
- information on the visit process for QAD audit monitoring reviews, covering matters such as the scope, review of audit files and concluding and reporting on visits; along with a link to the document Your audit monitoring visit review. This document provides practical pointers on aspects of the audit monitoring visit, such as:
- information you will need to have available for the start of your QAD visit;
- what to expect from the opening meeting and review;
- what to expect if yours is a larger, multi-partner firm;
- QAD monitoring visits to firms with at least one audit that’s ‘retained’ by the FRC and subject to monitoring visits by its Audit Quality Review team;
- the closing record that follows a QAD review;
- your firm’s response to QAD review findings; and
- possible outcomes.
‘Audit monitoring FAQs’ deals with questions that are often asked about processes around the review process, onsite review and other related matters. How does ICAEW decide on the number of audit files to review? What is ICAEW’s view about keeping queries from partner and manager reviews on the audit file? I am a small firm, why are you visiting me for two days? Find answers to these and other questions.
‘Managing an ICAEW audit monitoring visit’ is a faculty webinar recorded during December 2020. At just under an hour long, it offers firms of all shapes and sizes a wealth of insights and practical details from its two presenters, an experienced auditor and a seasoned QAD reviewer. A recording is available on demand.
QAD Monitoring of ISQM 1
From January 2023, QAD audit monitoring visits will include review of the firm’s ISQM 1 implementation. ISQM 1 and the system of quality management (SoQM) represent a significant shift away from the reactive quality control requirements of ISQC 1 that firms are familiar with, to a more proactive approach to quality management.
The new SoQM will ensure that your quality management 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, firms 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 an 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
QAD is working with the Audit and Assurance Faculty to support its implementation guidance for ISQM1. You can stay up to date on the latest developments and access resources by visiting the hub for ‘Quality management in audit firms’, reviewing the technical guidance and best practice advice in the latest editions of ‘Audit News’ and reading Audit & Beyond.
There is considerable interest from firms, keen to understand QAD’s planned approach to monitoring compliance with the new requirements
In early 2023, QAD 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. Subsequently, insights and good practice from this survey will be shared for the benefit of all ICAEW audit firms. Depending on the results, similar surveys may be conducted in 2024 and 2025 expanding into evaluation and monitoring requirements
The review of ISQM 1 implementation during audit monitoring visits (from January 2023) will provide an opportunity for the firms involved to discuss their SoQMs with a QAD 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 & Beyond
This article was first featured in the September 2022 edition of Audit & Beyond.
