AUDIT MONITORING FREQUENTLY ASKED QUESTIONS Visit process

AUDIT MONITORING
FREQUENTLY ASKED QUESTIONS
Visit process
How often can I expect an ICAEW audit monitoring visit?
We may visit you at any time. However, we visit most firms on a six-year cycle unless they have
listed or other higher risk audits.
I am a small firm, why are you visiting me for two days?
Where we expect to review more than one audit file, we schedule a 2-day visit. This is to allow time
for our review and also adequate time for you to consider any questions we have and discuss them
with us during the visit.
How do ICAEW grade audit visits?
We grade audit visits by outcome. There are a range of outcomes.
 visit closed without follow-up action
 some further follow-up action
 detailed report to the audit registration committee.
Audit quality is one component of the overall visit outcome. If the reviewer has concerns about the
ability of a firm to make necessary improvements then we will recommend some form of follow-up
action (such as submission of cold or hot file reviews) to the Audit Registration Committee.
The most significant failings we find relate to gaps in audit evidence and judgements.
Our reviewers are not able to commit to a grading or outcome at the closing meeting stage. This is
because the final decision will depend partly on the firm’s formal responses and any questions
raised in our quality control processes. However, reviewers should be able to give your firm an
indication of the likely range of outcomes. You can find more information about audit quality and
visit outcomes in Audit Essentials 2015 which you can download from icaew.com/auditguidance
Have there been any changes to the ICAEW audit monitoring process in recent years?
We have separated audit monitoring visits from other visits such as reviews for Practice Assurance
and the monitoring of DPB licence holders.
Our approach to onsite visits has not changed but we also conduct some off-site monitoring
telephone reviews for firms with no audits and mid-cycle reviews for some other firms.
We use electronic documentation rather than paper-based files and we continually review our
working methods and practices to ensure an effective monitoring process. Firms will probably
notice an increased use of electronic communication such as email to exchange information during
visits.
Copyright © ICAEW 2015
June 2015
Onsite review
Does the ICAEW audit file selection take account of industry specialism such as charities?
We aim to select files that show how firms respond to risks and challenges that they face in
performing audits.
If charities (for example) represent a significant proportion of audit assignments, or individual
charity audits are significant, we may well decide to select a charity file.
However, we may review a charity file because a firm performs very few charity audits as there
may be issues around familiarity with the specialist accounting and audit requirements. In these
cases the review may be focused on certain aspects of the specialist audit work.
How does ICAEW decide on the number of audit files to review?
We aim to select enough files for review to cover the major risks in the firm’s audit activity. The
sample will depend on factors such as:
 the number of responsible individuals;
 the nature, scope and results of the firm’s compliance review process; and
 the number and type of public interest and higher-risk clients.
Unless a firm has only one audit, we will always review a minimum of two audit files.
How does ICAEW take account of external file reviews in the scope of their work?
External cold file reviews can provide a good picture of audit quality at a firm. Smaller firms find
them particularly useful to check their compliance with audit regulations and use of their audit
system. We see external reviews at firms as a positive commitment to audit quality.
We consider the results of cold file reviews when selecting our file review sample. For internal and
external cold file reviews we assess the reliability of the review by a direct re-performance or by
looking at an audit file for the year following a review. The latter approach also helps us to assess if
the firm has taken appropriate remedial action following a cold file review.
What is ICAEW’s view about keeping queries from partner and manager reviews on the
audit file?
We do not require or expect firms to retain cleared review queries on the audit file. Firms
sometimes retain review queries to record audit evidence but it may be preferable to amend and
update the audit working papers.
What sort of weaknesses does ICAEW typically find in whole-firm procedures at smaller
firms?
Smaller firms do not generally need complex policies and procedures, and may rely on generic
documents from a proprietary audit compliance manual. Firms should tailor generic documents to
suit their own circumstances.
Sometimes policies and procedures may not cover all areas, for example:
 policies and procedures relating to consultation;
 resolution of differences of opinion;
 when and how to obtain an engagement quality control review (EQCR); and
 procedures to address independence threats.
Can I still do my own cold file reviews?
Although ISQC1 states cold file reviews should be done by someone independent of the audit
team, you may find this impractical. Where this is the case, it is still acceptable to do your own
Copyright © ICAEW 2015
June 2015
reviews as long as they are effective and you have an external cold file review at least once every
three years.
Other
Are your reviewers full time, and are they employed by ICAEW?
Most of our reviewers are employed by, and work exclusively for ICAEW. We also have a small
number of subcontractors who work on a freelance basis. All of our reviewers are suitably qualified
and have appropriate experience. They all sign annual fit and proper, independence and
confidentiality declarations.
How does my firm compare to those of a similar size?
A popular question and one to which there is no easy answer. Our annual audit monitoring reports
will give you some insights into what we find on our reviews. You can download Audit Essentials
from icaew.com/auditguidance
Does ICAEW see greater risks as a consequence of there being more asset valuations
under FRS102?
Yes. Any significant change in accounting requirements is likely to increase audit risks relating to
financial reporting, at least for a transitional period.
ISA 315 lists factors that point towards the existence of significant risks. These include:
 recent significant accounting developments;
 complexity of transactions; and
 subjectivity in the measurement of financial information.
FRS 102 may result in a business recognising some assets and liabilities for the first time, as well
as carrying more items at a valuation.
This is likely to require the exercise of more judgement by preparers of the accounts and auditors.
The auditors will also need to be aware of increased threats to independence and objectivity if the
client asks them to assist with preparation of accounts that include items requiring valuation.
Copyright © ICAEW 2015
June 2015