Resources, information and communication

When considering whether appropriate resources are available to perform engagements, practitioners have traditionally only considered human resources available within the firm. The new quality management standards expand on this, however, by requiring firms to also consider the technological and intellectual resources available. Firms should also consider whether appropriate resources are available to maintain their quality management system; they should establish an information system to support the operation of their quality management system, and ensure that the necessary communication takes place internally and externally.

Firm-level considerations

ISQM 1 para 32 requires firms to establish quality objectives that address obtaining, developing, utilising, maintaining, allocating and assigning appropriate resources in a timely manner, including the following:

a. Human resources: Hiring, developing, training and retaining personnel with the competence, capability and commitment to quality to consistently perform quality engagements, or perform activities within the system of quality management; holding personnel accountable, or recognising them for their commitment, development and performance; obtaining individuals from external sources, where necessary; assigning appropriate personnel to engagements and activities within the system of quality management
b. Technological resources: Obtaining, developing, implementing, maintaining and utilising appropriate technological resources to facilitate the operation of the system of quality management, and performance of engagements
c. Intellectual resources: Obtaining, developing, implementing, maintaining and utilising appropriate intellectual resources to facilitate the operation of the system of quality management, and consistent performance of quality engagements; ensuring that intellectual resources are consistent with professional standards, and legal and regulatory requirements
d. Service providers: Ensuring that human, technological or intellectual resources from service providers are appropriate for utilisation in the system of quality management, and the performance of engagements.

ISQM 1 para 33 requires firms to establish quality objectives that address obtaining, generating, or utilising information regarding the system of quality management, and communicating information internally and externally, in a timely manner, ensuring that:

a.  The information system identifies, captures, processes, and maintains relevant and reliable information supporting the system of quality management
b. The culture of the firm recognises, and reinforces effective two-way communication and information-sharing, including:

(i) Communicating relevant and reliable information to engagement teams to enable them to understand and fulfil their responsibilities
(ii)  Personnel and engagement teams communicating information to the firm

c.  Relevant and reliable information is communicated to external parties, including:

(i)  Communication within the firm’s network or with service providers to facilitate the fulfilment of responsibilities
(ii) Communication of information externally when required by law, regulation or professional standards, or to support external parties’ understanding of the system of quality management.

Engagement-level considerations

The engagement partner must ensure that sufficient and appropriate resources are assigned, or made available to the engagement team in a timely manner to perform the engagement, considering the nature and circumstances of the engagement, firm policies and procedures, and any changes arising during the engagement.

The engagement team must collectively possess the appropriate competence and capabilities, as well as sufficient time, to perform the engagement. If the resources assigned are insufficient or inappropriate, the engagement partner must take appropriate action, including assigning additional or alternative resources to the engagement.

The responsibility lies with the engagement partner to ensure that resources assigned to the engagement team are utilised appropriately, given the nature and circumstances of the engagement.

Common concerns identified

Audit regulators have noted instances where assurance reports were signed off by non-assurance registered auditors, which indicates a failure by those firms to ensure that only individuals with the necessary authority sign off on assurance engagements. In other instances, some firms could not provide evidence to substantiate professional training provided to staff.

Generally, firms seem to have a tendency to over rely on service providers, without duly considering whether the technological and intellectual resources they provide are appropriate. Going forward, technological and intellectual resources will be assessed by regulators, and it would be wise for firms to apply lessons learnt from the human resources element to these other elements as well. Information and communication will also receive more attention from regulators in the near future.

In summary

Practitioners must ensure that they take responsibility for obtaining, and utilising sufficient and appropriate resources within the firm. Technological and intellectual resources provided by service providers must be assessed, and staff must be developed, trained and assigned to tasks that they are able to perform to ensure the appropriate level of engagement quality. Appropriate information systems and communication must be established, and maintained.
LEAF can assist firms with the assessment of resources, information, and communication considerations through firm and engagement-level monitoring reviews, methodology design reviews, and staff training on the relevant requirements and procedures.

References

1. IAASB, ISQM 1: Quality management for firms that perform audits or reviews of financial statements, or other assurance or related services engagements
2.  IAAS, ISA 220 (Revised): Quality management for an audit of financial statements

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