Audit Practice

Every statutory auditor in public practice is required to undertake a Review of the System of Quality Management (RSoQM). The selection of the reviewer and the frequency of this review is determined by the size of the audit practice and should comply with the Guidance Note on the Review of the System of Quality Management under ISQM 1 as issued by the Accountancy Board of Malta in November 2022. This Guidance Note emphasizes that while ISQM 1 covers various services (including assurance, reviews and other related services), this Guidance focuses specifically on audit engagements.

RSoQM

The RSoQM underscores the importance of a structured approach to quality management reviews under ISQM 1, ensuring that audit practices not only comply with regulatory standards but also foster a culture of continuous improvement. Regular evaluations and adherence to the prescriptive components established by ISQM 1 are essential for maintaining high-quality standards in auditing and assurance services. The auditor will be provided with an External Independent Review of System of Quality Management Report covering a number of areas including:-

  • Risk assessment process
  • Governance and leadership
  • Ethical requirements
  • Client relationship acceptance and continuance
  • Engagement performance
  • Resource allocation
  • Information and communication
  • Monitoring and remediation processes

What des it involve?

Annual Evaluation: Auditors must conduct an annual evaluation of their quality management system to ensure it meets its objectives. This involves assessing whether the system provides reasonable assurance regarding its effectiveness and issue a yearly conclusion thereon.

Monitoring and Remediation: A robust monitoring process must be established to gather timely information about the quality management system’s design and operation. Identified deficiencies must be addressed promptly, with remedial actions tailored based on Root Cause Analysis (RCA).

Cold File Reviews: The Guidance specifies that completed audit engagements (cold file reviews) must be included in monitoring activities. Firms should select at least one completed engagement per partner on a cyclical basis, ensuring comprehensive oversight.

The External Independent Review of System of Quality Management Report will be submitted following each review process and as established in the letter of engagement agreed with the statutory auditor. The external reviewer and the statutory auditor will meet to discuss the findings (along with other appropriate personnel), the RCA and decide on the corrective action and/or changes to make to the system, roles and responsibilities, disciplinary action, recognition, and other matters as determined necessary. 

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