10 Tips for Audit Firms to prepare for ISQM 1 28.10.22

by John McCarthy Consulting Ltd. | Oct 28, 2022 | Blog, News

Around the globe, auditors are preparing for the imminent ISQM 1 regime, and it’s now just under fifty days to the deadline – 15 December 2022. On or before this date every Irish audit firm will need an ISQM-compliant System of Quality Management (‘SOQM’).

Our new ISQM TOOLKIT is the answer to your needs and is available to purchase now for immediate download to help get you started. Click here for more details.

If you’re tempted to conclude that you’ve left it too late to meet the deadline, our message is: don’t despair. There is still opportunity to get ready, although it’ll mean setting aside dedicated partner time to achieve this, and regulators will be looking for clear evidence of progress by the end of the year and certainly by this time in 2023.

Here are our top ten tips to helping you get your SOQM across the finish line:

1. Read the ISQM. There’s really no way around this! We’d recommend you also get hold of the IAASM Implementation Guide, which is genuinely helpful – although be warned; this is for the international version of the ISQM and doesn’t include the additional quality responses added to the Irish standard by the Irish Audit & Accounting Supervisory Authority (IAASA).
2. Assess your current approach to audit quality. Firms aren’t (usually!) starting from scratch on audit quality and will have various policies and procedures already in place. While we want to stress that you shouldn’t simply ‘bolt on’ ISQM to your existing approach, it’s helpful to get a clear insight into what’s happening now (e.g., by taking a look with a critical eye at your existing ISQC 1 but being careful not to copy and paste the answers, but what’s in the ISQC1 may be helpful).This may mean gathering various documents (like staff appraisals, CPD plans and IES 8), clarifying existing arrangements with the rest of the team and organising your thoughts.
3. Find out what your team thinks about your current approach. Chances are, you and your team already have sound insights into what’s working well and what isn’t, and some honest feedback may be painful but is essential to making progress.John McCarthy Consulting Ltd. (working in conjunction with our colleagues in Apex Professional Consulting Ltd.) has produced the ISQM TOOLKIT for the Republic of Ireland. It comes with a team questionnaire that can help you to gather anonymous feedback including suggestions for tackling problem areas.
4. Start with leadership and governance issues. For most if not all small firms, a critical success factor for ISQM compliance is the degree of support from partners, especially managing partners within firms.Whether your firm is a sole practitioner or a larger firm, ISQM 1 challenges senior leadership to demonstrate genuine commitment to audit quality, recognising that this may not always align with a firm’s commercial strategy or its leaders’ priorities. You need to identify and deal with those conflicts, if present. You’ll also need to consider how much of the SOQM can be delegated to others and how the firm’s leadership will demonstrate that they bear ultimate responsibility for its success.
5. Don’t dismiss the appointment stage. Many firms assign consideration of (re)appointment to junior audit staff who lack the judgement to assess ethical threats and to apply the right safeguards. Accepting a client relationship or engagement inappropriately removes any chance to achieve a quality audit.
6. Be honest about priorities. Many firms say that they’re committed to audit quality, but a cursory scrutiny about how much of the firm’s time and money is spent in supporting and developing high quality audit may suggest otherwise.ISQM 1 demands that firms allocate enough resource to recruit and develop audit teams, supply them with appropriate tools (including hardware and software) and allow them the time to conduct audits thoroughly. You’ll also need to assess the quality risks of over-relying on external training providers, file reviewers or providers of methodology or IT tools.
7. Refocus on prevention rather than cure. In the past, many audit firms have relied on regular cold file reviews to ensure their quality is up to scratch. Whilst such reviews will still play a key role, firms need to consider how to avoid audit defects altogether.For many audit partners, this may mean reducing the amount of time spent in review, and increasing the time spent in directing and supervising audits whilst in progress. Better prepared and managed teams should produce better audit files that need less review and remediation.
8. Plan your monitoring as you go. As you set out your SOQM, make sure that every element is trackable and assign responsibility for monitoring to specific individuals, with clear instructions about how they should check progress and how they must record this. This should make the ‘monitoring and remediation’ part of the process much less burdensome. Don’t leave it all until the end!
9. Get familiar with Root Cause Analysis (‘RCA’). This is a tool that has increased in profile of late, and while RCA can be sophisticated, it needn’t always be so. The aim is to identify systemic defects that, if corrected, will prevent problems from recurring. Don’t be afraid of asking ‘why did X happen’ multiple times when a quality problem is spotted, until the roots are uncovered.
10. Consider external support. Whilst it’s possible to implement ISQM 1 without any other support, especially if you use a good transition tool (did we mention that John McCarthy Consulting Limited has designed the ISQM TOOLKIT with the smaller firm in mind?), you may find that getting the assistance of a specialist can be hugely valuable, even if just as a sounding board.

It’s impossible to cover everything in this brief blog. For more assistance please see our new ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please call or e-mail John McCarthy FCA or e-mail him at john@jmcc.ie

Publications and AML webinar

• The ISQM TOOLKIT 2022 is available to purchase here.
• See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
• Also we have an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
• To ensure your letters of engagement and similar templates are up to date visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.