Audit quality and QC1000

Marie Pupecki Date published: Oct 30, 24

These aren’t easy times to be an auditor.  The rapid pace of change, the greying of the workforce, dramatic declines in new CPAs, new regulation, complexity in accounting rules and practices, ever-widening scope of work, aggressive regulators, technology.  It’s no wonder that rates of deficiencies in Part 1.A of the PCAOB inspections is steadily rising.

Source:  PCAOB

Part 1.A deficiencies also known as Audits with Unsupported Opinions indicate that the auditors did not have sufficient evidence to support their opinion on the financial statements.  This has clearly been one factor in the PCAOB stepping in with a new standard QC 1000, A Firm's System of Quality Control (QC1000). Previously auditing firms followed AICPA’s SQMS No. 1, A Firm’s System of Quality Management which requires firms to establish and maintain a system of compliance with applicable professional standards, with policies and procedures for independence, personnel management, client acceptance and other matters.

QC1000 is a comprehensive framework designed to enhance the quality control processes within audit firms. It requires firms to identify and assess quality risks that could impact their ability to achieve quality objectives. This involves understanding the conditions, events, and activities that may affect the firm’s engagements and overall operations. The framework also emphasizes the importance of continuous monitoring and documentation. Firms are expected to document risks, quality objectives, procedures, and results related to various aspects such as ethics, independence, governance, and leadership.  By integrating these elements, firms can ensure that their quality control processes are robust, transparent, and capable of withstanding regulatory scrutiny. This holistic approach not only improves audit quality but also enhances the firm’s reputation and reliability in the market.

Wondering how to improve your firm’s results?  Ideagen has the solutions to assist in your compliance with this new standard.  Ideagen software provides an integrated approach to assurance quality offering three components: Ideagen Internal Audit, Audit Analytics and Disclose. 

Risk assessment and the QC process

Ideagen Internal Audit can be your one source of truth for monitoring all components of the QC1000, easily documenting risks, quality objectives, procedures and results related to ethics and independence, governance and leadership, information and communication and allows for a reporting and remediation process.  It is highly configurable, allows for multiple firm locations or multi-level group hierarchies.  The risk assessment is based upon standard framework that you can select:  ISQM, COSO, and the Global IIA Standards.  Risks can be presented in standard risk registers to be collectively tracked, analyzed and solved.  Quality risk assessments include likelihood, impact and perspectives and identify the inherent, residual and target level of risk. Each location has a customized dashboard illustrating risks, related control objectives and control testing and activities.  You can easily create reports directly from the system or download to excel. 

After risk identification and assessment, including inherent, residual or target, you can seamlessly create procedures, document your team and link your quality objective, risk assessments and appropriate control activities supporting your objectives.  Tests of controls are directly linked to the risk they mitigate, including attaching the appropriate evidence.  Actions and action types can be set to notify users of an action that is required at a certain deadline.  You can determine and monitor the workflow, dates and methodology from planning through signoff.  All findings are available for reporting.  Visual views of the activities and progress and deadlines exist.  Historical period results can be tracked and archived for document retention. 

From this one source, Integrate your required activities for the entire quality control process, including results from other workflows or activities, such as governance, engagements and resources.  Easily perform and document internal audit inspections, deficiencies and perform root cause analysis, aggregating findings and reporting.   Provide your internal and external quality control function with the ability to evaluate significant judgments made and the related conclusions in Ideagen Audit & Risk. 

Easily complete and document the proper acceptance or continuance procedures for your engagements.

Audit Analytics provides insightful data content with SEC registrant company profiles utilizing our proprietary risk matrix that includes organized around five basic categories of metrics and events: Financial Reporting, Controls, Insiders, Stakeholders, and Auditors.  Some of the key components include financial scores such as Altman Z score, Benford’s Laws, flags for restatements, late filings, material weaknesses, audit fees and many more. 

If you plan to continue with legacy systems and processes, or as documentation of your quality control process, you can use our Disclose checklist to ensure compliance with the new standard.  Our automated disclosure checklist has mapping for ISQM, QC1000 and the AICPA quality standards which can be used to centralize requirements and the evidence of compliance.    

In conclusion, the introduction of the new PCAOB standard marks a significant shift in audit firm quality control procedures, emphasizing the need for comprehensive risk assessment and meticulous documentation. Ideagen’s suite of tools, including Ideagen Internal Audit, Audit Analytics, and Disclose, offers a robust solution to navigate these changes effectively. By integrating these tools, firms can ensure compliance, enhance their quality control processes, and ultimately improve their audit outcomes. Embrace these advancements to stay ahead in the evolving landscape of audit and assurance.

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