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Audit monitoring FAQs

A series of FAQs looking at the ICAEW's Audit monitoring procedures. Updated May 2017.

Visit process

How often can I expect an ICAEW audit monitoring visit?

We may visit you at any time, but we must visit all firms at least every six years. As required by the new Audit Regulation and Directive (ARD), we use a risk-based approach to select firms for their next visit. The various factors for consideration include:

  • the size and complexity of the firm;
  • its RSB-scope audit clients; and
  • previous regulatory history.

Your firm’s next visit date will depend on this risk-based selection approach. You may have your next visit on or just before the six-year anniversary of your previous visit, but this is not an automatic default or right under the ARD. You may find we visit you more frequently. As before, we will notify you when your firm has been selected for a visit.

I am a small firm, why are you visiting me for two days?
Where we expect to review more than one audit file, we schedule a two-day visit. This is to allow time for our review and also adequate time for you to consider any questions we have and discuss them with us during the visit.
How do ICAEW grade audit visits?

We grade audit visits by outcome. There are a range of outcomes:

  • visit closed without follow-up action;
  • some further follow-up action; or
  • detailed report to the Audit Registration Committee.

Audit quality is one component of the overall visit outcome. If the reviewer has concerns about the ability of a firm to make necessary improvements, we will recommend some form of follow-up action (such as submission of cold or hot file reviews) to the Audit Registration Committee. The most significant failings we find relate to gaps in audit evidence and judgements.

Our reviewers are not able to commit to a grading or outcome at the closing meeting stage. This is because the final decision will depend partly on the firm’s formal responses and any questions raised in our quality control processes. However, reviewers should be able to give your firm an indication of the likely range of outcomes. You can find more information about audit quality and visit outcomes in Audit Essentials which you can download from icaew.com/auditguidance

Have there been any changes to the ICAEW audit monitoring process in recent years?

We have separated audit monitoring visits from other visits such as reviews for Practice Assurance and the monitoring of DPB (Investment Business) licence holders.

Our approach to visits has not changed but we also conduct some off-site monitoring telephone reviews for firms with no audits and mid-cycle reviews for some other firms.

We use electronic documentation rather than paper-based files and we continually review our working methods and practices to ensure an effective monitoring process. Firms will probably notice an increased use of electronic communication such as email to exchange information during visits.

Onsite review

Does the ICAEW audit file selection take account of an industry specialism such as charities?

We aim to select files that show how firms respond to the risks and challenges they face in performing audits.

If charities (for example) represent a significant proportion of audit assignments, or individual charity audits are significant, we may well decide to select a charity file.

However, we may review a charity file because a firm performs very few charity audits as there may be issues around familiarity with the specialist accounting and audit requirements. In these cases the review may be focused on certain aspects of the specialist audit work.

How does ICAEW decide on the number of audit files to review?

We aim to select enough files for review to cover the major risks in the firm’s audit activity. The sample will depend on factors such as:

  • the number of responsible individuals;
  • the nature, scope and results of the firm’s compliance review process; and
  • the number and type of public interest and higher-risk clients.

Unless a firm has only one audit, we will always review a minimum of two audit files.

How does ICAEW take account of external file reviews in the scope of their work?

External cold file reviews can provide a good picture of audit quality at a firm. Smaller firms find them particularly useful to check their compliance with audit regulations and use of their audit system. We see external reviews at firms as a positive commitment to audit quality.

We consider the results of cold file reviews when selecting our file review sample. For internal and external cold file reviews we assess the reliability of the review by a direct re-performance or by looking at an audit file for the year following a review. The latter approach also helps us to assess if the firm has taken appropriate remedial action following a cold file review.

What is ICAEW’s view about keeping queries from partner and manager reviews on the audit file?

We do not require or expect firms to retain cleared review queries on the audit file. Firms sometimes retain review queries to record audit evidence but it may be preferable to amend and update the audit working papers.

What sort of weaknesses does ICAEW typically find in whole-firm procedures at smaller firms?

Smaller firms do not generally need complex policies and procedures, and may rely on generic documents from a proprietary audit compliance manual. Firms should tailor generic documents to suit their own circumstances.

Sometimes policies and procedures may not cover all areas, for example:

  • policies and procedures relating to consultation;
  • resolution of differences of opinion;
  • when and how to obtain an engagement quality control review (EQCR); and
  • procedures to address independence threats.
    Can I still do my own cold file reviews?
    Although ISQC1 states cold file reviews should be done by someone independent of the audit team, you may find this impractical. Where this is the case, it is still acceptable to do your own reviews as long as they are effective and you have an external cold file review at least once every three years.

    Other

    Are your reviewers full time, and are they employed by ICAEW?

    Most of our reviewers are employed by, and work exclusively for ICAEW. We also have a small number of subcontractors who work on a freelance basis. All of our reviewers are suitably qualified and have appropriate experience. They all sign annual fit and proper, independence and confidentiality declarations.

    How does my firm compare to those of a similar size?

    A popular question and one to which there is no easy answer. Our annual audit monitoring reports will give you some insights into what we find on our reviews. You can download Audit Essentials from icaew.com/auditguidance

    Does ICAEW see greater risks as a consequence of there being more asset valuations under FRS102?

    Yes. Any significant change in accounting requirements is likely to increase audit risks relating to financial reporting, at least for a transitional period.

    ISA 315 lists factors that point towards the existence of significant risks. These include:

    • recent significant accounting developments;
    • complexity of transactions; and
    • subjectivity in the measurement of financial information.

    FRS 102 may result in a business recognising some assets and liabilities for the first time, as well as carrying more items at a valuation.

    This is likely to require the exercise of more judgement by preparers of the accounts and auditors. Auditors need to be aware of increased threats to independence and objectivity if their client asks them to assist with preparation of accounts that include items.