ISQM1 and Root Cause Analysis – What does it mean for you?

By now all major Accountancy and Audit firms will have seen or will be aware of the Exposure Draft (ED) from the International Auditing and Assurance Standards Board entitled ISQM1.  The paper is laying down wide-ranging proposals that will insist on substantial changes in Quality Management related to audits, reviews of financial statements and other assurance or related engagements. 

Initially presented as the International Standard on Quality Control the paper has been developed to ensure that audit and accountancy firms’ systems continue to be robust, take advantage of best practice and effectively support high-quality audits and other engagements.

At the heart of ISQM1 is a focus on enforcing a genuinely proactive, risk-based approach to quality management, one that puts high quality Root Cause Analysis front and centre as a quality-focused method, that if executed to a high standard, can ensure that deficiencies are fully understood, dealt-with and explained.

The emphasis of the changes proposed by the IAASB is firmly on specific enhancements that will address firms’ systems of quality management, previously known as systems of quality control, repeatedly referencing high quality Root Cause Analysis as a preferred solution.

Other enhancements in the paper include:

• Increasing firm leadership responsibilities and accountability, and improving firm governance;
• Modernising the standard for an evolving and increasingly complex environment, including addressing the impact of technology, networks, and use of external service providers; and
• More rigorous monitoring of quality management systems and remediating deficiencies.