ICAEW.com works better with JavaScript enabled.

How to improve audit quality with root cause analysis

Miriam Hanley reveals why identifying the problem is the first step to delivering continuous improvements and progress in audit quality.

As 34th US president Dwight D Eisenhower once said: “Accomplishment will prove to be a journey, not a destination.” Similarly, improving and sustaining audit quality is a journey, not something that will be achieved overnight. It requires patience and tenacity. It also requires that some important steps be taken along the road.

One of the first steps towards improving audit quality is to identify the areas of weakness where improvements are required. An efficient way to do this is through internal reviews, such as cold file reviews or engagement quality control reviews, and external reviews, such as those conducted by ICAEW’s Quality Assurance Department. Once the common weaknesses have been identified, it is also important to identify the reasons behind the deficiencies. This will allow the appropriate remedial action to be implemented.

A recommended way to do this is through root cause analysis. ICAEW offers tips on performing this in a paper and a recent Audit & Beyond article.

Once the common areas of weakness and the reasons behind them have been established, the next step is to create a plan and to prioritise. In my experience, it is likely that many different areas of quality deficiency will be identified. It will not be possible to address all these areas at once and this would not be an effective approach to improving audit quality. You must prioritise.

The different areas of weakness identified will need to be listed from highest to lowest priority, with consideration given to the impact of the weakness and the probability of occurrence. For example, a weakness that has a low impact, but high occurrence is likely to be a lower priority than one that has a greater impact, even if occurrence is lower.

Once the different weaknesses have been prioritised, a quality improvement plan can be created. The plan needs to be flexible, as additional weaknesses may be identified through subsequent internal or external reviews, which will need to be added to the plan.

Reasons to change the plan are also likely to emerge during its implementation. For example, you may need new procedures or templates and the audit team might be required to perform additional work. This may not be viewed positively by the audit team, especially when they already have heavy workloads.

For quality improvements to be successful, it is important to get the team on board with the required changes. If feasible, it is beneficial to get some audit team members involved in the process of implementing change. For example, if a new procedure is required, you could ask for feedback from a select group of people before implementing the change. Individuals are more likely to embrace change if they feel as though they have been consulted along the way.

The final step in the process is to review the impact of the changes implemented, to identify whether they have achieved the desired improvements in audit quality. The scheduling of such reviews needs to give sufficient time for changes to be embedded and improvements observed. One suggested approach is to specifically include a review of the areas of weakness in subsequent cold file reviews. Another approach is to obtain feedback informally from ‘responsible individuals’, to establish whether they have seen quality improvements.

In summary, the key steps in the quality improvement process are:

  • identify areas of weakness;
  • make a plan and prioritise;
  • get the audit team on board with the changes; and
  • review progress.

This process will need patience – and perseverance. There are new quality management standards in the pipeline and they are likely to have a significant impact on audit firms. So watch this space. As the saying goes, it’s a marathon, not a sprint.