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How to get the most from root cause analysis

Root cause analysis is starting to make its way up the audit agenda. Julia Penny of JS Penny Consulting shares some insights on what’s involved and how to get the most from it, including numerous resources and practical examples to consider.

Until a few years ago, you might not have heard about root cause analysis (RCA) in the context of audit. However, the approach has been used for decades by various industries to understand what went wrong when some sort of disaster, such as a crash on a racetrack, or a quality issue, such as a manufacturing error, occurred. Audit regulators now routinely ask firms to conduct an RCA into quality failings identified during a review. But what exactly does RCA entail?

As the name suggests, RCA is about digging deep enough to uncover the underlying or root causes of the relevant failure to find out why this has happened. In the context of audit, this analysis might be prompted by a cold file review that identifies insufficient evidence on a valuation during an audit, for instance; the firm may want to find the reason for recurring failures when auditing accounting estimates; or RCA may be required if ICAEW’s quality assurance review process categorises any of its findings as ‘more significant’.