Root Cause Analysis – The Root of Many Evils

Root Cause Analysis – The Root of Many Evils

With the advent of ISQM1, ISQM2, and the revised ISA 220, the term, ‘root cause analysis’, has surfaced as a requirement when encountering failures in audit engagements, and within the audit quality management system. During inspections, the IRBA also assists firms with the determination of root causes. It is one of the most important aspects of the quality management system and, therefore, deserves detailed attention. Why do I say that? It is one of the few opportunities for engagement partners, quality leaders and audit teams to have a focused discussion on issues identified to determine the root causes, and establish action plans.

These discussions force teams to rethink their understanding of requirements, related audit procedures and the way these procedures are documented. RCA is not just another document to complete and sign off. It should result in a detailed action plan to prevent similar issues in the future. These action plans may include policy amendments, risk register updates, memorandums, adjustments to training plans, and changes to methodology and templates. Such amendments should be communicated immediately to the relevant parties and, most importantly, implemented as soon as possible. Execution and implementation require strict supervision to ensure that actions are carried out correctly, and on time.

The key is to ensure that new audit engagements and quality management system procedures incorporate these action items, that teams understand the implications, and that they are executed promptly to prevent recurring failures after the initial issue has been identified.

Firms should, therefore, focus their energy on the procedures following an EQR or monitoring review of system or engagement files. All aspects of root cause determination and action plan execution must be addressed; otherwise, the monitoring exercise will be a total waste of time and money. Expert involvement is crucial to ensure that all angles of the quality management system and audit engagement execution are addressed.

Failures in this area have proven disastrous when clients escalate complaints to the regulator, monitoring reviews repeatedly fail, and inefficiencies within firms continue to increase. Root cause analysis is essential for continuous improvement, which is an inherent goal of all audit firms, and the benefits derived are disproportionately positive.